313 ERG Res., LLC v. Merlon Tex. Inc.
Tuesday, September 1st, 2015
Richard F. Brown
The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
ERG Resources, LLC v. Merlon Texas, Inc., No. 01-08-01007-CV, 2009 WL 3491049 (Tex. App.—Houston [1st Dist.] Oct. 29, 2009, no pet.) (mem. op.), held that an assignment conveying the assignor’s right, title, and interest in certain lands as of a specified Effective Date and “the personal property thereon” conveys the oil in storage on the land as of the Effective Date, regardless of when it was produced. Paragraph 1 of the assignment conveyed assignor’s “right, title, and interest in [the land], . . . inclusive, without limitation, the properties and/or oil and gas units located thereon, . . . together with . . . the personal property thereon, appurtenant thereto, or used or obtained in connection with said properties and/or oil and gas units.” Paragraph 5 of the assignment conveyed assignor’s “right, title, and interest in and to the oil, gas of any kind and nature, other hydrocarbons and other minerals in, on and produced from or allocated to the leasehold interest sold to [assignee] from and after the Effective Date hereof.” It was undisputed that the oil severed from the land by production was personal property. Assignor contended that oil in storage on the land as of the Effective Date, but produced prior to the Effective Date, belonged to Assignor.
The court held that:
[P]aragraph 5 gives [assignor] a mineral interest–an interest in the oil and gas in place as of the Effective Date of the Assignment. Paragraph 5 does not conflict with paragraph 1. Paragraph 1 addresses the conveyance of all kinds of personal property, including the oil ‘thereon’ the Land, while paragraph 5 addresses the conveyance of the oil and gas in place.
Thus, the oil and gas in place passed as of the Effective Date by paragraph 5, and the personal property on the land was conveyed as of the Effective Date by paragraph 1. The court found that the language used in paragraph 5 is the language that “is historically used to transfer a mineral estate, that is, the oil, gas, and other minerals in place, not severed from the ground.” Presumably it was the “in, on and produced from” language which the court found persuasive.
Purchase and sale agreements and assignments frequently use a series of descriptive paragraphs to describe the property interests to be transferred. It is common to describe the oil and gas leases to be conveyed and the personal property located thereon. Generally, the parties are thinking in terms of wellhead and surface equipment when using that language. It is also common to have an effective date provision to allocate between the parties the right to the production and the obligation to bear the costs. This generally works for gas, which is not usually in storage, but oil in the tanks creates a special issue. The case is significant because it highlights the careful draftsmanship required to carry out the parties’ intent as to oil in storage.