414 Moore v. Noble Energy, Inc.

Richard F. Brown

 
The following is not a legal opinion.  You should consult your attorney if the case may be of significance to you.
 
Moore v. Noble Energy, Inc., 374 S.W.3d 644 (Tex. App.—Amarillo 2012, no pet.), held that a reservation clause that reserved to Grantor “a one-half non-participating royalty interest (one-half of one-eighth of production)” was not ambiguous and reserved a fractional royalty in the amount of a one-sixteenth royalty interest to the Grantor.  In 1955, by warranty deed J. C. Moore conveyed to the Veterans’ Land Board 160 acres, reserving to himself “a one-half non-participating royalty interest (one-half of one-eighth of production) . . . .”  At the time of the conveyance, the property was not subject to a mineral lease.  In 2003, Noble Energy, Inc., as lessee, leased the property for a 3/16 royalty.  The successors of J. C. Moore (“the Moores”) claimed that that the reservation was ambiguous, and could reasonably be “construed to reserve a royalty of one-half the royalty retained by the lessor in a future lease.”  The successors to the Veterans’ Land Board and Noble Energy, Inc. (“Noble”) claimed that the deed unambiguously reserved a fixed 1/16th royalty interest.
 
The opinion begins with a prologue explaining that the court is responsible for deciding whether an instrument is ambiguous.  In order to answer this question of law, the court must examine “the instrument as a whole” to determine the “intent of the parties from the four corners of the deed.”  Applied to the 1955 deed, the court had to determine “whether the reservation was subject to more than one reasonable interpretation and thus ambiguous.”
 
The court distinguished between a “fraction of royalty,” whose “owner is entitled to a share of mineral production equal to the stated fraction times the royalty retained in the lease,” and a “fractional royalty,” whose owner “is entitled to the stated fraction of gross production, unaffected by the royalty reserved.”  The court found that both parts of the 1955 reservation, “a one-half non-participating royalty interest” as well as “(one-half of one-eighth of production),” speak “straight-forwardly of a factional royalty.”
 
Although the “one-half non-participating royalty interest,” language, standing alone “would reserve to the grantor a fifty percent interest in the production, free of production costs,” the court found this interpretation unreasonable in light of the impracticality of such an onerous burden on future lessees.  Further, such an interpretation would ignore the parenthetical language.  The court also noted that since there was no well producing from the property at the time of the 1955 deed, the reservation could not refer to any existing royalty, making it more likely that the language intended to reserve a fixed one-sixteenth royalty interest.
 
The court concluded by holding the reservation could only be reasonably read to reserve a royalty of one-half of one-eighth of production, or one-sixteenth.  This case continues the four corner approach to instrument interpretation.