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Devon Energy Production Company, L.P. v. Robert Leon Oliver, et al.
Corpus Christi Court of Appeals reversed a $15.8 million royalty judgment against Devon Energy and BPX, holding that lease language valuing royalties 'at the wells as of the day it is run to the pipe line or storage tanks' established an at-the-well valuation point under Heritage Resources and rendered post-production cost addenda mere surplusage. The trial court committed reversible error by allowing the jury to value royalties at the downstream Houston Ship Channel point rather than applying market value at the well.
Analysis
Corpus Christi Court Reverses $15.8 Million Royalty Judgment in DeWitt County Lease Interpretation Dispute Over Valuation Point and Post-Production Costs
The Corpus Christi Court of Appeals reversed a $15.8 million royalty underpayment judgment against Devon Energy and BPX Operating involving 110 oil wells across 3,700 acres in DeWitt County, holding the trial court erred in its lease construction that royalties were not valued "at the well" and that lessors bore no post-production costs. The dispute centered on reconciling form lease language specifying valuation "at the wells as of the day it is run to the pipe line or storage tanks" with addendum provisions requiring a cost-free royalty where "Lessor's royalty on hydrocarbons shall never bear, either directly or indirectly, any portion of" post-production costs.
Corpus Christi Court Reverses $15.8M Royalty Judgment, Holds 'At the Wells' Language Trumps Post-Production Cost Addenda Under Heritage Resources
Corpus Christi Court of Appeals reversed a $15.8 million royalty judgment against Devon Energy and BPX, holding that lease language valuing royalties 'at the wells as of the day it is run to the pipe line or storage tanks' established an at-the-well valuation point under Heritage Resources and rendered post-production cost addenda mere surplusage. The trial court committed reversible error by allowing the jury to value royalties at the downstream Houston Ship Channel point rather than applying market value at the well.