Post-production cost deductions have long been a source of dispute between royalty owners and operators in Texas. Recent case law — most notably the Texas Supreme Court’s decision in Devon v. Sheppard — has reshaped how these costs are interpreted under certain oil and gas leases.
In short:
- Gross Proceeds leases protect royalty owners from bearing post-production costs up to the point of sale.
- Proceeds Plus leases go further, also shielding royalty owners from post-sale costs when those costs are reflected in the sales price — even if this results in a royalty value higher than the price actually received by the operator.
- The Sheppard decision confirms that custom lease language can override industry-standard interpretations, making the exact wording of your lease critical to determining cost allocation.
- The evolution of Texas oil and gas lease language
- Key cases that shaped today’s rules, from Heritage Resources to Hyder to Sheppard
- Practical implications for operators and royalty owners when negotiating, interpreting, or litigating lease terms
Understanding the nuances of lease language is essential to protecting your economic position — whether you’re drafting new agreements or evaluating existing ones.
Download the presentation here.
