III. Back in the Trial Court
Supreme Court then held that the 2011 Stipulation should have been considered, and it created by agreement a floating NPRI equal to 1/8 of future lease royalties.
On return to the trial court, Conoco argued that even if the Gips Deed created a fixed 1/8 NPRI and the 2011 Stipulation was inadmissible, Hahn agreed to convert his fixed NPRI to floating by ratifying the Gips Lease. Central to this novel argument was whether an NPRI owner executing a lease ratification adopts all lease terms, or whether a ratification is generally a consent to pooling only. If the NPRI owner ratifies all provisions – including the royalty provision – Conoco’s position is that the NPRI owner consents to having his interest diluted by the landowner royalty. The trial court agreed with Conoco, once again holding that Hahn had converted his fixed NPRI to a floating NPRI. However, this time the trial court’s reasoning was based on the ratification as opposed to the 2011 Stipulation. Hahn appealed again.
The Gips Lease Ratification Did Not Convert the NPRI
First, the court held that the ratification of the Gips Lease did not convert Hahn’s NPRI from fixed to floating. In ratifying the Gips Lease, Hahn agreed to have his fixed 1/8 NPRI reduced by the tract participation factor his lands contributed to the Maurer Unit B, but not to have his interest further diminished by the 1/4 landowner royalty. Pooling in Texas affects a cross-conveyance of interests such that each pooled owner owns an interest in the unitized tract in the proportion their contribution bears to the unitized tract. However, because an NPRI is not leasable ( i.e., the NPRI owner has no right to negotiate or execute a lease) Texas law holds that his interest cannot be diluted by pooling absent his consent. This consent can take the form of ratifying the lease, ratifying a pooling agreement, or sometimes from accepting diluted royalties from the pool. Note that when ratifying a lease, an NPRI owner should exercise caution, as any lease provision that can apply to the NPRI may be binding. The Supreme Court holds here that a lease’s royalty provision generally will not apply to an NPRI based on the different nature of the property interests. An NPRI is a fractional non-possessory interest and not part of the mineral fee itself like a landowner royalty. Therefore, ratifying a lease does not automatically dilute the NPRI by the landowner royalty. The royalty set forth in the Gips Lease does not affect Hahn’s interest.
IV. Second Appeal: Hahn v. ConocoPhillips [7]
In Hahn’s second appeal, the appellate court again reversed the decision of the trial court, holding that the Gips Lease ratification did not convert Hahn’s NPRI from fixed to floating. The court of appeals also doubled down on its holding that the 2011 Stipulation could not be considered because it violated the four corners rule. In once again holding that the Gips Deed created a 1/8 fixed NPRI, the court of appeals also underscored the fact that the 2011 Stipulation issue had been presented to and rejected by the Supreme Court when it denied a petition for review in Hahn v. Gips . This time around, the Supreme Court granted Conoco’s petition for review.
V. The Supreme Court Weighs In [8]
The Supreme Court first “assumed without deciding” that the Gips Deed had reserved a fixed 1/8 NPRI in favor of Hahn. Displaying a degree of skepticism in this calculation, the court noted that “neither party has asked us to disturb this holding or the court of appeals’ judgment in [the First Appeal] as part of our review of its decision in [the Second Appeal].” The original intent of the Gips Deed, however, became a moot point as the
The 2011 Stipulation Did Convert the NPRI
Second, the Supreme Court held that the court of appeals erred in excluding the 2011 Stipulation.
[7] 698 S.W.3d 274 (Tex. App.—Corpus Christi – Edinburg 2022, pet. filed). [8] 2024 Tex. LEXIS 1180.
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G rowth T hrough E ducat i on - J anuary / F ebruary / M arch 2025
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