Today the Texas Supreme Court issued its opinion in Devon v. Sheppard, No. 20-0904, again addressing post-production cost deductions from royalties. The Court affirmed the court of appeals’ ruling in favor of the royalty owners.
Sheppard leased minerals in the Eagle Ford Shale in 2007, before the first successful well in the Eagle Ford. Sheppard is a lawyer in Cuero, Texas. His lease required payment of royalties on gross proceeds of sale, without deduction of post-production costs. The lease also contained this provision:
If any disposition, contract or sale of oil or gas shall include any reduction or charge for the expenses or costs of production, treatment, transportation, manufacturing, processing or marketing of the oil or gas, then such deduction, expense or costs shall be added to … gross proceeds so that Lessor’s royalty shall never be chargeable directly or indirectly with any costs or expenses other than its pro rata share of severance or production taxes.