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Hahn v. ConocoPhillips: When is a Stipulation Enforceable?

On the last day of 2024 the Texas Supreme Court issued its opinion in ConocoPhillips v. Hahn, No. 23-0024, putting to rest a long-running dispute between Kenneth Hahn and ConocoPhillips (COP). The opinion deals with a fixed vs. floating NPRI reservation, and a stipulation of interest addressing the reservation.

Kenneth Hahn owned the surface estate and 1/4th of the minerals in 37 acres of land in DeWitt County. In 2002 Hahn conveyed the tract to William and Lucille Gips, reserving

an undivided one-half non-participating interest in and to all of the royalty [Hahn] now owns (same being an undivided one-half of [Hahn’s] one-fourth or an undivided one-eighth royalty) ….

The deed provided that it would remain in effect for a term of 15 years, ending in June 2017.

In 2010 the Gipses leased the tract to COP. Hahn ratified the lease. In 2011 Hahn and the Gipses were asked by COP to sign a Stipulation of Interest to “clarify” the royalty reservation in Hahn’s deed to the Gipses. The stipulation provided that the NPRI reserved in the deed “was a one-eighth ‘of royalty’ for a term of 15 years from June 9, 2003.”

COP included the 37 acres in a pooled unit and drilled wells on the pooled unit. COP credited Hahn with 1/4 of 1/8 royalty, or .03125 royalty, in the 37 acres. Hahn contended he was entitled to a fixed 1/8 royalty.

The Court of Appeals held that the Hahn-Gips deed reserved a fixed 1/8 royalty. It also held that the Stipulation of Interest did not change that result, because the deed is not ambiguous. Note that, because Hahn owned only a one-fourth mineral interest, the royalty reserved by the Gipses in their lease would be 1/4 of 1/4, or 1/16, so Hahn’s reservation, according to the Court of Appeals, reserved more royalty than the Gipses reserved in their lease. COP was faced with having to pay more than the 1/4 royalty reserved in the Gips lease.

The Supreme Court first said that it would assume without deciding that the Court of Appeals was correct in concluding that the Gips deed reserved a fixed 1/8 royalty for Hahn. It then addressed COP’s two arguments:

First, COP argued that Hahn, by ratifying the lease, converted his royalty to 1/8 of the 1/4 royalty reserved in the lease. The Court rejected this argument. Whatever royalty Hahn reserved, it was not affected by the ratification. (Title attorneys will undoubtedly be relieved that an NPRI owner’s lease ratification does not affect the royalty owner’s fractional interest.)

Second, COP argued that the Stipulation of Interest was enforceable. On this point, the Supreme Court agreed. Because of the stipulation, Hahn’s reserved NPRI became 1/8 of the royalty reserved in the Gips lease. The Court of Appeals had concluded, based on the prior opinion of the Supreme Court in Concho Resources v. Ellison, 627 S.W.3d 226 (Tex. 2021) that there must be some ambiguity as to the interest stipulated to in order for the stipulation to have effect. The Supreme Court rejected that analysis:

Requiring proof of ambiguity–whether objective or subjective–“would scuttle” agreements between property owners as to their respective interests “as a mechanism to avoid litigation because parties will never know whether their informal settlement of a boundary dispute is effective until it is declared so by a court.”

Again, title attorneys will be happy to know that stipulations of interest are effective to establish title, regardless of whether the instrument at issue is in fact ambiguous.

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