Granting Clause vs. Exhibit: The Eternal Question of Assignment Scope
Texas
In Citation 2002 Inv. LLC & Endeavor Energy Res., L.P. v. Occidental Permian 1 , the El Paso Court of Appeals addressed the scope of an assignment of oil and gas leases. The issue was whether certain “deep rights” had been retained or conveyed in a 1987 assignment of oil and gas leases. The facts – which will likely be familiar to many oil and gas practitioners – concern broad language in the body of the assignment conflicting with a potential depth limitation in the exhibit. In 1987, Shell Western E&P, Inc. (“Shell”) assigned numerous leases, wellbores, and other interests in West Texas and New Mexico to Citation 1987 Investment Limited Partnership (the “1987 Assignment”). The 1987 Assignment included the following provisions (in relevant part):
leasehold estates described in Exhibit A; [and] All of Shell’s right, title and interest in and to any contracts or agreements . . . above or below certain footage depths or geological formations, affecting the property described in Exhibit A. It is the intent of this Assignment to transfer and convey to Citation . . . all rights and interests now owned by Shell . . . regardless of whether the same may be incorrectly described or omitted from Exhibit A . . .” (the “statement of intent”) The referenced Exhibit A scheduled numerous leases, some of which included in the tract description the phrase “down to 8,393 feet”. For example (emphasis added):
“All of Shell’s right, title and interest in and to the oil and gas fee, mineral and
IV.
V.
VI.
TRACT DESCRIPTION
INTEREST ASSIGNED IN DESCRIBED TRACT 1.00000000 WI. 0.87500000 NRI. 0.50000000 WI. 0.43750000 NRI.
BEING SUBJECT TO THE FOLLOWING AGREEMENTS
Block A, A-271 L&SV Ry. Co. Survey
Gas Purchase Contract dated 12-14-79 with El Paso Natural Gas effective 02-25-80. Operating Agreement dated 03-01-66 with Shell Oil Company, Operator, and Southland Royalty et al. Non-Operators1
Sec 23: SE/4 and NW/4 down to 8,393 feet Block A, A-955
L&SV Ry. Co. Survey
Sec 28: E/2 SE/4 down to 8,393 feet
1 Id. at 12 2 Id. at 5. 3 Posse Energy, Ltd. v. Parsley Energy, LP, 632 S.W.3d 677, 693 (Tex. App.—El Paso 2021, pet. denied). 4 Piranha Partners v. Neuhoff, 596 S.W.3d 740, 752-55 (Tex. 2020). because of – and to the extent of – the relevant granting language 4 . A court will consider an instrument’s language as a whole in light of that controls the scope of the grant, regardless of the breadth of the granting language 3 . However, such an exhibit is only relevant
Shell’s interest later passed to Occidental Permian (“Oxy”), and Citation 1987 Investment Limited Partnership’s interest passed to Citation 2002 Inv. LLC (“Citation”) and Endeavor Energy Res., L.P. (“Endeavor”). In 2019, Oxy sued Citation and Endeavor to determine whether only the “Shallow Rights” (from the surface down to 8,393 feet) or all depths had been assigned in the 1987 Assignment. 2 As a general rule, when an exhibit is referenced to describe property being conveyed, it is the description of the interest in the exhibit
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G rowth T hrough E ducat i on - J anuary / F ebruary / M arch 2023
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