The Oil and Gas Addendum

A recent Texas appellate court decision brings renewed attention to an oil and gas ownership problem that is not unique to Texas — old deeds that use fractions in ways that made sense when they were written, but that may be interpreted differently now, decades later. The question in B.H.C.H. Mineral, Ltd. v. Needmore Minerals, LLP, No. 04-24-00382-CV (Tex. App. May 20, 2026), is deceptively simple: when a deed from nearly a century ago reserved "an undivided One-Thirty-second (1/32) of all oil, gas and other minerals," what kind of interest did that language actually create — and what royalty does it carry today? Pennsylvania oil and gas owners who hold interests under instruments from that same era should take note, because what looks like a settled fraction on the face of an old deed may not be so clear.

Background of the B.H.C.H. Mineral Case

The B.H.C.H. Mineral case arose from a 1937 deed where Esperanza Livestock & Land Company conveyed a 23,513-acre ranch in Webb County, Texas to John F. Sinclair. In that deed, Esperanza reserved "an undivided One-Thirty-second (1/32) of all oil, gas and other minerals on, in and under said land." That reservation stripped out the executive right, meaning that the grantee, Sinclair, acquired the authority to execute oil and gas leases on the land without Esperanza joining in. The deed also excluded the grantor from sharing in any bonus money or delay rentals. However, the deed included an important protection: "in any such lease or leases there must be retained by the Lessor a royalty of at least one-eighth (1/8)."

Esperanza's corporate charter was forfeited in 1951, and its shareholders — the Esperanza Successors — inherited the reserved interest. That interest did not fade away. When a 1967 lease was executed reserving a 1/6 landowner's royalty, the operators could not locate the Esperanza shareholders and suspended their royalty share, calculating it as a fixed 1/32 of gross production. The Garner successors — who held the remaining mineral interest — later entered indemnity agreements in 1976 and 1985 to receive the suspended funds, and those agreements described the 1937 deed reservation as "a perpetual and nonparticipating royalty interest equal to one-thirty-second of eight-eighths (1/32 of 8/8)" of production. Subsequent Garner-chain conveyances in the late 1980s repeated that same characterization.

In 1990, the Esperanza Successors sued the Garners for the Esperanza Successors’ claimed share of the royalties. That lawsuit was resolved in 1992 by an agreed judgment that recognized the Esperanza Successors' ownership of "a 1/32nd mineral interest" — treating the reservation in the 1937 deed as an actual mineral interest and not a non-participating royalty interest (NPRI). Despite the judgment's express characterization, the division orders continued to account for the Esperanza interest as an NPRI, and operators thereafter kept paying it as a fixed royalty measured against gross production.

In 2020, San Isidro Development Company, L.C., analyzing the Garner chain of title, concluded that the Esperanza interest had been miscalculated all along. If the 1937 deed reserved a 1/32 mineral interest — not a 1/32 NPRI — then the Esperanza Successors were entitled to 1/32 of the landowner's royalty under any given lease, not 1/32 of gross production. Under the 1967 lease’s 1/6 landowner's royalty, the correct calculation was 1/32 (mineral interest ownership) multiplied by 1/6 (royalty rate) — yielding 1/192 of gross production, rather than 1/32. In other words, the producers had been substantially overpaying the Esperanza Successors for decades by treating their mineral interest as a fixed royalty. San Isidro calculated the historical mistreatment had over-credited the Esperanza interest by approximately 2.59% of the 1/6 royalty. San Isidro assembled an investor group including Needmore Minerals, LLC, acquired the Garner interests in 2021, and moved to correct the record. Litigation followed.

The Texas Court of Appeals Concludes the 1937 Deed Reserved Minerals in Place and Not an NPRI

The Texas Court of Appeals affirmed the trial court's conclusion that the 1937 deed reserved a non-executive mineral interest with a floating royalty — not a fixed 1/32 NPRI. (A floating royalty is one that is calculated as a fraction of whatever landowner's royalty is negotiated in a future lease). The Court’s conclusion rested on two independent pillars of analysis, both of which have direct relevance for reading old Pennsylvania instruments.

The first basis was the opening language in the 1937 deed's mineral exception. The clause used the phrase "of all oil, gas and other minerals on, in and under said land" to describe property interests being retained. That is language that Texas courts have consistently treated as describing a mineral estate, an ownership interest in minerals in place, rather than a mere royalty carved from the mineral estate. A royalty interest typically speaks in terms of "production" or "royalties," not minerals "in and under" the land. On this point, the B.H.C.H. Mineral court noted that distinguishing mineral interests from NPRIs is a "perennial problem" in Texas oil and gas law, but found the language here was "neither unusual nor idiosyncratic" — it was standard mineral-estate language.

The second pillar was what the Texas appeals court called "attribute stripping." Under Texas law, a mineral estate is understood to be a bundle of five separate rights: the right to develop; the right to execute leases (the executive right); the right to receive bonus payments; the right to receive delay rentals; and the right to receive royalties. When a deed conveys or reserves a mineral interest and then expressly removes specific attributes from the bundle — here, the executive right, bonus money, and delay rentals — the result is a non-executive mineral interest: a mineral estate stripped of some of its components, but still a mineral estate. The court reasoned that if the grantor intended to reserve only a fixed royalty, there would have been no need to strip away attributes like the executive right and bonus rights that a royalty owner would not have in the first place. Stripping those attributes from a pure NPRI would be redundant.

Reinforcing both conclusions was the 1937 deed exception’s minimum-royalty clause — the requirement that the grantee's future leases must retain "a royalty of at least one-eighth (1/8)." The court found this clause would be meaningless surplusage if the Esperanza excepted interest was fixed at 1/32 of gross production, because a fixed royalty does not depend on the landowner's royalty rate. The appeals court reasoned that the only reason to include a minimum royalty floor in the deed exception language is if the grantor's share depends on what royalty is negotiated in future leases — confirming the floating character of the retained interest.

The Presumed-Grant Doctrine and the Dissent

As an alternative, Esperanza argued that even if the deed's text pointed toward a mineral interest, decades of consistent overpayment established a fixed 1/32 NPRI under the presumed-grant doctrine. That is a common-law doctrine that, in appropriate circumstances, allows courts to presume that a property right has been established by long, consistent, and open conduct rather than by a formal conveyance. The Texas Supreme Court has recently invigorated this doctrine in Van Dyke v. Navigator Group, 668 S.W.3d 353 (Tex. 2023), and Clifton v. Johnson, No. 23-0671 (Tex. Mar. 13, 2026).

The majority in the B.H.C.H. Mineral decision rejected Esperanza's presumed-grant argument on two grounds. First, it held that the presumed-grant doctrine had never been extended to royalty interests in Texas.  A royalty, the court reasoned, is more analogous to rent — a passive, non-possessory income interest — and does not involve the kind of visible, open, adverse use or possession that the doctrine was designed to recognize. Second, even setting aside that threshold question, the court concluded that Esperanza had not proven the required "open, adverse claim." The division orders and the Garner family's long-standing acknowledgment of a fixed 1/32 payment reflected the operators' and prior title holders' own understanding of the deed — not an affirmative, hostile claim by the Esperanza Successors themselves.

Justice McCray dissented. He disagreed with the majority on both of its presumed-grant conclusions. On the threshold question, the dissent argued that the majority had the history of the doctrine backwards. According to Justice McCary, the presumed-grant doctrine was first applied in English courts to non-possessory rights and was only later extended to possessory land interests. As a result, in the dissent’s view, applying the presumed-grant doctrine to a royalty interest was a return to the doctrine’s origins, not an extension.

On the facts, the dissent argued the record overwhelmingly satisfied the presumed-grant doctrine's requirements. For decades, division orders, royalty payments, indemnity agreements, and deed recitals treated the Esperanza interest as a fixed 1/32 royalty. Justice McCray thought it relevant that Tulley Currey, a Garner heir and direct predecessor in interest to the appellees, testified in deposition that the Garner heirs had always considered the Esperanza interest to be a fixed 1/32 royalty and had never taken the position that it was a floating mineral interest. Based on all of this, in the dissent's view, it was improper for the majority to resolve the deed construction question first and then use that resolution to foreclose the presumed-grant analysis. The dissent reasoned that, under the Texas Supreme Court’s recent decision in Clifton v. Johnson, No. 23-00674 (Tex. Mar. 13, 2026) that presumed-grant doctrine is "concerned not with textual meaning but with real-world developments," and the real-world developments here, in the dissent’s view, pointed in Esperanza's favor.

That disagreement is not merely academic. The dissent's argument, grounded in decades of consistent conduct, including Needmore's own predecessors, demonstrates that reasonable minds can reach a different conclusion on the same record. Where the deed language is less clean than it was here, or the historical treatment more uniform, that argument gets stronger.

What Does It Mean for Pennsylvania Oil & Gas Owners Holding Interests Under Old Deeds?

The B.H.C.H. Mineral decision is not a Texas curiosity. In the historically active oil and gas counties of southwestern and northwestern Pennsylvania — Greene, Washington, Westmoreland, Fayette, Venango, Clarion, and Butler among others  — deeds, oil and gas reservations, and severance instruments from the early and mid-20th century are common, and many were drafted against the same assumed 1/8 royalty baseline that generated this dispute in Texas. The oil and gas industry grew in Pennsylvania and Texas at about the same historical time and the instruments reflecting transfers of property interests were informed by the drafting styles and terminology of the time.  In drafting, there was a widespread assumption that the "standard" royalty under an oil and gas lease was 1/8 of production of oil. This was frequently included into deed language not as an explicit term, but as an implied reference point.

The consequence of that assumption is that the same interpretive problem the B.H.C.H. Mineral court wrestled with — what did a fraction in an old deed actually mean — exists in Pennsylvania instruments as well. A grantor who in 1935 wanted to retain a 1/4 share of whatever royalties her land might generate could express that intent in at least two ways: as a fraction of production ("I reserve 1/4 of all royalties"), or as a fraction of the assumed standard royalty ("I reserve 1/4 of the usual 1/8 royalty"). The latter formulation, multiplied out, produces 1/32. The deed might say "1/32" on its face — but the grantor meant a proportionate share of whatever royalty was actually reserved, not a fixed 1/32 of gross production. When the assumed 1/8 baseline was never written into the deed, that intent is invisible to a reader who does not know the history.

A Lesson for the Future: Write It So Someone Can Read It in a Hundred Years

The B.H.C.H. Mineral litigation carries a lesson that applies as much to documents being drafted today as to century-old instruments. Drafting ambiguity in oil and gas instruments is expensive. An 87-year-old deed generated multi-party litigation, an interpleader action, competing summary judgment motions, and an appellate decision with a significant dissent — all over whether "1/32" meant what it said arithmetically or something contextually different.

The majority's conclusion in B.H.C.H. Mineral was well-supported — the deed's language, its attribute-stripping structure, and its minimum-royalty clause all pointed toward a non-executive mineral interest rather than a fixed NPRI. But the dissent's argument was not frivolous, and the presumed-grant doctrine it invoked remains unsettled in the royalty context. That gap matters, because it means that in similar disputes — where the deed language is less clear, or where the historical treatment of the interest is more deeply entrenched — the outcome is not predetermined. These cases are more complicated than the fraction on the face of an old deed suggests, and what looks like a settled answer often is not.

Pennsylvania's oil and gas title history is full of instruments with exactly that kind of hidden complexity. If you hold an interest under an old deed and are not certain whether it carries a fixed royalty or a floating one, that question is worth examining — and worth a conversation with counsel before you conclude the answer is obvious.

If you have questions about an oil and gas interest that you hold or how your royalties are being calculated, contact Brendan A. O'Donnell at 412-288-2226 or odonnellba@hh-law.com.