A Texas court held that an assignment of overriding royalty interests covering “all depths” was not limited to a specific formation, rejecting the argument that references to a unit agreement implied vertical limits on the conveyed interests.
Case Overview
The 1996 Assignment and Unit Agreement
Dispute Over Deeper Formation Production
Court Rejects Limitation to Spraberry Formation
Key Rationales Supporting the Court’s Decision
Conclusion
Case Overview
This recent case (Rock River Minerals, LP v. Pioneer Nat. Res. USA Inc., No. 08-23-00216-CV, 2024 WL 4528917 [Tex. App.—El Paso Oct. 18, 2024, no pet. h.]) explored whether an assignment of an overriding royalty interest, which expressly pertained to "all depths located within the geographical boundaries of the [North Pembrook Unit] as identified in the Unit Agreement," was implicitly limited to just the specific producing formation described in the referenced Unit Agreement.
The 1996 Assignment and Unit Agreement
Michael Cass owned a 2.125% overriding royalty interest in certain leases that were part of the North Pembrook Spraberry Unit. In 1996, Cass executed an assignment conveying these interests to Pioneer's predecessor. The assignment contained broad granting language, assigning all of the seller's interest in "Leases described on Exhibit 'A'," including overriding royalty interests "in the lands which are described on Exhibit A.” The Exhibit A, in turn, said it covered "all lands from the surface of the earth to all depths located within the geographic boundaries of the [North Pembrook Unit] as identified in the Unit Agreement….” The Exhibit A also stated that the conveyance covered "all [interests] included within the above Unit, as to the lands included within such Unit, from the surface of the earth to all depths….”
The Unit Agreement, in turn, contains a map showing the "Unit Area," and also defined the "Unitized Formation" as "that subsurface portion of the Unit Area commonly known as the Spraberry Formation[…].”
Two decades later, the assignee drilled wells producing from the deeper Wolfcamp formation. Cass sued, seeking a declaration that his 1996 assignment had conveyed only his interests in the Spraberry Formation. Cass contended that the references to "geographic boundaries" meant not only the horizontal surface boundaries of the land, but also the vertical subsurface boundaries of the unitized formation. The assignees countered that the express "to all depths" language from the assignment controlled.
The court rejected Cass's interpretation. The court acknowledged that an exhibit to an assignment can effectively limit the scope of the assignment, but the Texas Supreme Court has held that descriptive information in exhibits do not necessarily limit the assignment and may instead only serve a purpose of providing further descriptive information. In the court’s view, when properly harmonized, the Cass assignment incorporated the unit agreement for the purposes of describing the "geographic boundaries" so as to more clearly identify the property, and not to limit the scope of the assignment.
In the court's view, this outcome was supported by several rationales discussed below.
Key Rationales Supporting the Court’s Decision
First, the assignment itself purported to assign interests “to all depths.” Second, the assignment referred to the Unit Agreement specifically for purposes of defining the "geographic boundaries.” In the court's view, the plain meaning of that phrase refers only to surface boundaries.
Third, the assignment itself described the conveyance as all interests within the "unit" rather than just the "unitized formation.” In the court's view, those two phrases had distinct meanings under the Unit Agreement, with "unit" referring to the entire area of land while "unitized formation" meant only "the subsurface portion.”
Fourth, the assignment also contained another granting clause assigning "unitized acreage […] within the lands described in Exhibit A.” In the court’s view, that phrasing indicated the parties viewed unitized rights as being just subset of the “lands.” Given that the granting clause primarily in dispute assigned “all lands” as to “all depths” within the unit, the court viewed this as granting all of the lands, and not only the unitized rights.
Conclusion
The court concluded that had Cass intended to convey only Spraberry Formation interests, "he could have easily done so.” However, in the court's view, he did not include such a limitation, and instead for the reasons summarized above he conveyed all overriding royalty interests he owned in all depths within the unit's surface boundaries.
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