Texas Supreme Court Holds Market Value Royalty Clause Controls Even When Lessee Realizes Above-Market Price Under Long-Term Contract

The Texas Supreme Court held that royalty owners with market-value royalty clauses are entitled only to prevailing market price royalties, not the higher price KCS Resources actually realized under a long-term gas purchase agreement with automatic price escalations. The Court refused to imply a covenant to reasonably market into leases with explicit market-value language, finding the objective royalty calculation provided sufficient protection without entitling lessors to share in particularly lucrative contract negotiations.