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):

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):

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 that controls the scope of the grant, regardless of the breadth of the granting language.[3]  However, such an exhibit is only relevant 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 these and other well-settled deed construction principles (and sometimes the relevant surrounding circumstances). [5]  The goal is to determine the parties’ intent within the four corners of a document by harmonizing all provisions.[6]

The Court agreed with Citation and Endeavor’s argument that the tract description column in Exhibit A to the 1987 Assignment does not contain depth-limiting language, but instead, merely contains “depth references.”  In reaching this conclusion, the Court gave a great deal of weight to the statement of intent above.  In particular, the Court emphasized the phrase “all rights and interests now owned by Shell” and “regardless of whether same may be incorrectly described or omitted from Exhibit A.”  The plain language of this provision demonstrated an intent to convey everything Shell owned as of the date of the Assignment, as to all depths.[7]

The Court further observed that the reference to “footage depths and geological formations” pertained only to third-party contracts and agreements.  Thus, the Court asserted, it is reasonable to assume that the depth references in Exhibit A were only intended to apply to these third-party agreements.  Finally, the Court rejected Oxy’s novel argument that the reference to third-party agreements was a mere “Mother Hubbard” clause meant to clean up only small errors.  Title was thus quieted in Citation and Endeavor as to all depths.[8]

This case again evinces Texas courts’ commitment to interpreting the entirety of a deed as opposed to applying mechanical rules of deed construction.  Although the general rule is that an Assignment’s exhibit controls its scope, a “statement of intent” can often trump this rule.  This is especially true when the statement includes language like “all rights and interests now owned” or “regardless of whether the same may be incorrectly described or omitted herein.”

We note that this article has been published prior to the deadline to file a petition for review with the Supreme Court of Texas.

[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).

[5] Luckel v. White, 819 S.W.2d 459, 461 (Tex. 1991).

[6] Id.

[7] 2022 Tex. App. LEXIS 9397, at 17.

[8] Id. at 19-20.