In fifth-grade arithmetic class, “one-half of one eighth” equals one-sixteenth.
In Texas oil and gas law, maybe yes, maybe no.
The meaning of that “double fraction” is at the heart of a mineral-rights case argued last week before the Texas Supreme Court, one involving nearly $50 million in disputed royalties, with the potential to affect untold millions, if not billions, of dollars under other ancient Texas land titles.
The case, Susan Van Dyke et al. v. The Navigation Group et al., centers on language frequently written into Texas land deeds a century ago, when landowners – mistakenly, it turns out, under subsequent case law – believed that they retained only one-eighth of any royalty interest when they leased mineral rights on their land to an oil-and-gas exploration concern.
Under this mistaken belief, “one-eighth” was sometimes used in deeds and other legal instruments as a synonym for “the landowner’s full royalty.”
So when, in 1924, George H. Mulkey, the owner of 424.5 acres of ranchland in Martin County northeast of Midland, sold the property to G.R. White and G.W. Tom and reserved for himself “one-half of one-eighth of all minerals and mineral rights in said land,” what he really meant, Mulkey’s successors argue, was that he was reserving one-half of the minerals and mineral rights for himself.
Baloney, argue the successors to White and Tom.
“One-half of one-eighth equals one-sixteenth,” David Keltner, a partner in Kelly Hart Hartman in Fort Worth, argued before the Supreme Court in behalf of the White and Tom assignees.
Therefore, said Keltner, a former Texas Second Court of Appeals justice in Fort Worth, one-sixteenth is the interest Mulkey reserved for himself when he conveyed the property by warranty deed – and the remaining fifteen-sixteenths of the minerals and mineral rights associated with the land belong to his clients.
Marc S. Tabolsky, a partner in Schiffer Hicks Johnson in Houston, arguing in behalf of Mulkey’s assignees, told the Texas justices that, as odd as it may sound today, at the time the land was conveyed, “one-half of one-eighth” was understood to mean “one-half of the landowner’s royalties.”
“This court has made clear time and time again … that when interpreting the terms of a deed or contract, it is the job of the court to give the terms the meaning they had at the time they were adopted by the parties,” Tabolsky said. “We don’t ask what the terms meant in 2022. We ask what terms meant in 1924, when the deed was executed.”
He added, “it doesn’t make much sense to us,” but in 1924, one-half of one-eighth was interpreted to mean one-half of the landowner’s royalties.
For decades, Tabolsky said, the two sides affirmed numerous times in various documents that they’d split the minerals and future royalties 50-50.
“The evidence is undisputed that, for nearly 90 years, both the Mulkeys and the Whites (and their successors and heirs) understood and believed that, under the 1924 deed, the Mulkeys owned half the minerals and the Whites owned half the minerals. And they acted in accordance with that belief,” he and other lawyers for the Mulkey successors wrote in their Jan. 19 petition to the Supreme Court.
Only after an exploration company, Endeavor Energy Resources, successfully drilled for oil and gas on the property in 2012, the Mulkeys’ lawyers wrote, did some of White’s successors first claim “that the Mulkeys had just reserved 1/16 (not 1/2) of the minerals in 1924.”
Some of those successors filed suit, and on Jan. 19, 2018, Martin County State District Judge Timothy D. Yeats issued a summary judgment in favor of the successors to White and Tom, declaring that they were entitled to fifteen-sixteenths – not one-half – of the mineral royalties from the land. That trial-court decision was affirmed Dec. 31, 2020, by the Eleventh Court of Appeals in Eastland, which said, “The 1924 deed is unambiguous and contains no inconsistencies. … We hold that, by the plain language of the reservation, the Mulkeys reserved a one-sixteenth interest in the minerals and mineral rights and conveyed the remaining fifteen-sixteenths to White and Tom.”
Should the Supreme Court uphold that appellate ruling, Tabolsky argued, it would “have a greatly unsettling effect on title” in Texas. In the case at hand alone, according to court documents, “nearly $50 million in disputed royalties sit in the District Court’s registry” awaiting a final decision in the matter.
“You see lots of these cases using double fractions,” he said. However, pressed by Justice Evan Young, Tabolsky was unable to say how many titles, or how much in mineral royalties, might ultimately be affected.