Burlington v. Texas Crude – Another Post-Production Cost Case

The Court of Appeals in Corpus Christi issued its opinion today in Burlington Resources Oil & Gas Company LP v. Texas Crude Energy, LLC, et al. Link to the opinion is here: burlington v texas crude

This is the first case to follow Chesapeake v. Hyder, the Texas Supreme Court’s most recent case addressing deductability of post-production costs from royalty payments.

Like Hyder, the instrument construed in Burlington v. Texas Crude involved an overriding royalty interest.  The language construed by the court in Burlington provided that the overriding royalty would be paid on the “amount realized” by the lessee, and said that the overriding royalty would be paid “free and clear of all development, operating, production and other costs.” The Court of Appeals concluded that the Supreme Court’s ruling in Hyder controlled its construction of the language and that Burlington had to pay the overriding royalty without deducting post-production costs.

I expect Burlington will petition the Supreme Court for review.