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Fasken Oil and Ranch, Ltd. v. Puig
The Texas Supreme Court reversed lower courts in a Webb County royalty dispute, holding that a 1960 deed reserving a non-participating royalty interest in minerals "produced from the above described acreage" permitted operators to deduct postproduction costs from downstream sales prices to arrive at wellhead value, despite "free of cost forever" language. The Court rejected the royalty owners' argument that the cost-free language transformed their interest from a royalty on raw minerals at the wellhead into a royalty on processed gas sold downstream, reaffirming that absent explicit language setting a downstream valuation point, NPRIs bear postproduction costs.
Analysis
Texas Supreme Court Clarifies 'Free of Cost' Language Does Not Shield NPRI from Post-Production Costs When Royalty Valued at Wellhead
The Texas Supreme Court reversed the Court of Appeals, holding that a deed reserving a non-participating royalty interest in minerals "produced from the above described acreage" permitted operators to deduct post-production costs from downstream sales prices to arrive at wellhead value, despite "free of cost forever" language in the deed. The Court reaffirmed that cost-free language restates the rule exempting royalty from exploration and production costs but does not shield NPRI owners from post-production costs absent explicit language setting a downstream valuation point.
Texas Supreme Court Reverses on 'Free of Cost Forever' NPRI Clause, Permits Post-Production Cost Deductions in Webb County Dispute
The Texas Supreme Court reversed lower courts in a Webb County royalty dispute, holding that a 1960 deed reserving a non-participating royalty interest in minerals "produced from the above described acreage" permitted operators to deduct postproduction costs from downstream sales prices to arrive at wellhead value, despite "free of cost forever" language. The Court rejected the royalty owners' argument that the cost-free language transformed their interest from a royalty on raw minerals at the wellhead into a royalty on processed gas sold downstream, reaffirming that absent explicit language setting a downstream valuation point, NPRIs bear postproduction costs.