## Facts

- A bank owned all minerals in the NE quarter and an undivided one-half interest in the NW quarter of a section in Ector County, Texas.
- In 1929, the bank conveyed to Gilcrease Oil Company an undivided three-fourths interest in the NE quarter and an undivided one-fourth interest in the NW quarter.
- In 1946, the bank leased its interests in the north half of the section to Stanolind under a lease containing a lesser-interest clause reducing royalties proportionately if the lessor owned less than the entire fee.
- The next month, Gilcrease separately leased its interests in the same 320-acre north half to Stanolind.
- Gilcrease’s lease (1) reserved a $160,000 oil payment characterized as an overriding royalty but reduced proportionately to the lessor’s actual ownership, and (2) included an entirety clause requiring the premises to be operated as one lease and all royalties to be treated as an entirety and divided among separate owners in proportion to acreage owned out of the entire leased acreage.
- After development, the NW quarter proved substantially more productive than the NE quarter; Gilcrease owned a larger mineral fraction in the less productive NE quarter and a smaller fraction in the more productive NW quarter.
- Gilcrease sought a declaration that it was entitled to royalties and oil-payment benefits based on its overall proportionate ownership in the entire 320 acres rather than on production attributable to each quarter.

## Issues

1. Whether the entirety clause required royalties under Gilcrease’s lease to be allocated among owners on an acreage-wide basis across the entire 320-acre leased premises, despite differing productivity between quarters.
2. Whether the reserved oil payment/overriding royalty interest was subject to the same acreage-based apportionment across the entire leased premises.

## Decision

- The Supreme Court of Texas held the entirety clause was effective and unambiguous, requiring the leased premises to be treated as one lease and royalties to be divided among separate owners according to the acreage each owned relative to the entire leased acreage.
- The Court held Gilcrease’s royalty entitlement under its lease was to be calculated on its proportionate ownership of the entire 320 acres, not tract-by-tract based on where production occurred.
- The Court held the reserved oil payment, tied to production under the same lease, was likewise subject to the lease’s acreage-based apportionment method.
- The Court reversed the court of civil appeals and reinstated the trial court’s summary judgment for Gilcrease.

## Legal Principles

- An oil-and-gas lease entirety clause providing that the premises will be operated as one lease and that all royalties will be treated as an entirety and divided among separate owners according to acreage is enforceable as written.
- Such an entirety clause may displace the default rule of tract-based royalty allocation by contractually requiring acreage-based sharing across the full leased tract.
- A production-based reserved interest under the same lease (including an oil payment characterized as an overriding royalty) follows the lease’s royalty-apportionment scheme when the reservation is payable from production “accruing hereunder.”
- A lesser-interest clause reduces the lessor’s royalty obligation to the lessee in proportion to the lessor’s ownership; it does not prevent separate contractual agreement among interest owners, via an entirety clause, to allocate the resulting royalty stream on an acreage basis.

## Conclusion

The court enforced the lease’s entirety clause to require acreage-based apportionment of both royalties and the reserved oil payment across the entire 320-acre tract, awarding Gilcrease payment based on its overall share of the leased acreage rather than on uneven production from individual quarters.


Thomas Gilcrease Found. v. Stanolind Oil & Gas Co., 266 S.W.2d 850 (Tex. 1954)