Articles Posted in Land Titles

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I’ve been asked what is a “net royalty acre.”

The term “net royalty acre” is used by mineral and royalty buyers to price a mineral or royalty interest that is subject to an oil and gas lease. It is related to, but different from, a “net mineral acre.”

To illustrate, consider the following hypothetical: I own a 1/4 mineral interest in Blackacre, containing 640 acres. My mineral interest is subject to an oil and gas lease reserving 1/4 royalty. There is one producing well on the tract and there are prospects for additional drilling.TexasBarToday_TopTen_Badge_Small

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Like most subjects, understanding oil and gas law is often a matter of knowing the terminology – WI, RI, ORRI, NPRI. These terms are often used in a confusing way and the definitions sometimes overlap. So I’m going to try to clear things up.

It all starts with the mineral estate. In Texas, the mineral estate can be separated (“severed”) from the surface estate. This can be done either by a conveyance or a reservation. I grant Blackacre to John Doe, reserving the mineral estate; or I convey the mineral estate in Blackacre to John Doe.  The mineral estate is considered an ownership interest in land, just like the surface estate. It carries with it certain rights – the right to explore for and extract the minerals under the land. To make that right effective, the owner of the mineral estate must have the right to use the surface estate – to go on the land and drill wells. So the mineral estate is called the “dominant estate,” because the surface estate is subject to the rights of the owner of the mineral estate to use the land to extract minerals.

The mineral owner may grant an oil and gas lease to an exploration company to drill wells on the land. In Texas, an oil and gas lease is a conveyance to the lessee of the mineral estate for the term of the lease, reserving a royalty interest.  An oil and gas lease severs the mineral estate into two interests – the lessee’s interest, often called the “working interest,” and the reserved royalty interest. When the lease expires, those two estates merge back together into the mineral estate.

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Dragon v. Trial, from the San Antonio Court of Appeals, No. 04-16-00758-CV, decided November 8, is a case that may be of interest only to title attorneys and landmen and those of us who delight in the minutiae of land titles. It is also, like many title disputes, the story of a dispute over land whose minerals have become fantastically valuable. The case involves 237 acres in Karnes County, in the heart of the Eagle Ford play.

TexasBarToday_TopTen_Badge_SmallIn 1932, the 237 acres was conveyed in equal shares to eight siblings. One of the siblings died, and the property was thereafter owned by the remaining seven. One of the siblings was Leo Trial. In 1983, Leo conveyed one-half of his 1/7th share to his wife Anna Ruth.

In December 1992, Jerome and Patricia Dragon purchased the property from Leo Trial and his siblings. They financed a part of the purchase with a 15-year note. Also, the grantors reserved the mineral estate in the 237 acres for a term of 15 years, after which title to the minerals would go to the Dragons. But Anna Ruth Trial did not sign the deed – an oversight that was not discovered until years later. Continue reading →

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In 2013, the Texas Legislature passed House Bill 724, creating the Texas Unclaimed Mineral Proceeds Commission, and charged the commission to study and provide recommendations regarding distribution of unclaimed mineral proceeds held by the Texas Comptroller of Public Accounts. The bill was sponsored by State Representative Ryan Guillen. The Commission met eight times during 2014, took voluminous testimony, and produced a 100-page report last December that is fascinating reading, at least for an oil and gas attorney in Texas. Most Texans know that large portions of South Texas were settled during the 17th and 18th centuries when the territory was governed by the King of Spain and later the government of Mexico. Those governments granted lands to their citizens (including Stephen F. Austin), and many subjects settled in South Texas on the lands granted to them. When Texas gained its independence, it recognized the validity of land grants made by Spain and Mexico. But immigration of settlers from the United States into these territories, prior to and after Texas’ independence, produced social and economic disruption and displacement of some of the Spanish and Mexican settlers and uncertainty regarding their land titles.

Anglo-American newcomers, with clear advantages in their knowledge of the new legal system, its procedures and language, now competed for the natural resources of the region, pressing their legal and economic advantages – supplemented at times by extralegal means – to acquire ownership of the land. In addition, loss of records, the difficulty of locating original boundary lines, the clouds on many of the titles, and complications of collective family ownership were potential sources of disputes and acrimony among competing parties of all stripes. The resulting resentment, sense of dispossession and injustice, suspicion, and bitterness flared into open conflict at times in South Texas in the nineteenth century and, justified or not, lingers even today.

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