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El Paso Court Rules on Estate Misconception Deeds

The El Paso Court of Appeals recently interpreted two deeds with conflicting fractions that each exhibited the estate misconception theory. In Davis v. COG Operating, LLC, 658 S.W.3d 784 (Tex.Civ.App.—El Paso 2022, no pet.) the original mineral owners executed two deeds to two different grantees. In the first deed to W. H. Haun, the interest conveyed is described as a “1/32 interest in and to all of the oil, gas, and other minerals.” Another clause described the interest as including “1/4 of all of the oil royalty and gas rentals, or royalty” under an existing lease. Another clause indicated that the deed included “1/4 of the money rentals” to extend the existing lease. Yet another clause stated that, once the lease terminated, the grantee would own a “1/4 interest in all oil, gas and other minerals.” A final clause indicated that a prior version of the deed mistakenly described the interest as “1/8 of said oil, gas and royalty,” but was being corrected to convey “1/4.”

In a second deed to Roberts, it was stated that “1/32 of the oil, gas and other minerals has heretofore been conveyed to W. H. Haun, and this conveyance does not include such mineral interests so conveyed”. This second deed also contained a reservation of “one-fourth (1/4) of the 1/8 royalty usually reserved by…oil and gas leases, so 1/4 of the 1/8 royalty [is] to be paid to us, our heirs or assigns… [and] in the case of production, we are to receive 1/4 of the 1/8 royalty and this conveyance is executed subject to the mineral interest theretofore conveyed to W. H. Haun, and also to the 1/4 royalty interest reserved by us as hereinbefore stated.

The “estate misconception theory” is a theory that reflects the mistaken belief in older deeds that, in entering into an oil-and-gas lease, a lessor retained a 1/8 interest in the minerals, rather than a 1/8 royalty. Thus, in the first deed, the grantor thought they were conveying 1/4 of their 1/8 mineral interest, or 1/32.

The Court held that the first deed conveyed a 1/4 interest in the mineral estate. Regarding the second deed, the Court held that the grantor intended to place the grantee on notice of a prior conveyance of 1/4 of the minerals, and that the reference to 1/32 was due to the estate misconception.

Interpreting these older deeds is not for the faint-hearted. They illustrate how the language in a deed is critical and why the input of an experienced oil and gas attorney is critical when buying or selling mineral interests.