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141					<span class="category-heading-label">Articles Posted in</span> <span class="category_name">Post-Production Costs</span>				</h1>
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160			<div class="published-date"><span class="published-date-label">Published on:</span> <time datetime="2026-05-04T11:18:45-05:00" class="post-date published" itemprop="datePublished" pubdate>May 4, 2026</time></div>
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163            <h2 class="entry-title" itemprop="name">                <a href="https://www.oilandgaslawyerblog.com/city-of-crowley-v-totalenergies-another-case-on-post-production-costs/" itemprop="url" title="Permalink to City of Crowley v. TotalEnergies &#8211; Another Case on Post-Production Costs" rel="bookmark">City of Crowley v. TotalEnergies &#8211; Another Case on Post-Production Costs</a>
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168			<div class="author vcard">By <span itemprop="author" itemtype="http://schema.org/Person" itemscope><a href="http://www.gdhm.com/people_and_practices/bios/?ID=36" class="url fn author-jmcfarland1 author-2030 post-author-link" rel="author" target="_blank" itemprop="url"><span itemprop="name">John McFarland</span></a><meta itemprop="sameAs" content="https://twitter.com/TXOilGasLawPro" /><meta itemprop="sameAs" content="https://www.linkedin.com/pub/john-mcfarland/a/4a0/974" /><meta itemprop="sameAs" content="http://lawyers.justia.com/lawyer/john-mcfarland-254699" /></span></div>
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177								<p>Last July the Fort Worth Court of Appeals decided <a href="https://search.txcourts.gov/SearchMedia.aspx?MediaVersionID=61bfda5c-fde0-413d-b0b1-2896e7831e31&amp;coa=coa02&amp;DT=Opinion&amp;MediaID=97195749-3d62-47da-bd76-e742695eb0ec"><em>City of Crowley v. TotalEnergies E&amp;P USA, Inc.</em></a> Last week the Texas Supreme Court denied the City&#8217;s petition for review. Another case in which <em>Heritage v. NationsBank</em> has raised its ugly head.</p>
178<p>The City&#8217;s lease had the following provisions related to how its royalty should be calculated:</p>
179<p style="padding-left: 40px">• The Lessee is to pay the Lessor “the Royalty Fraction of the market value at the point of sale, use, or other disposition” (the “Valuation Provision”);
180</p>
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197			<div class="published-date"><span class="published-date-label">Published on:</span> <time datetime="2026-05-04T11:18:45-05:00" class="post-date published" itemprop="datePublished" pubdate>May 4, 2026</time></div>			<div class="visuallyhidden">Updated:
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241								<p>In <a href="https://search.txcourts.gov/SearchMedia.aspx?MediaVersionID=8c3728ef-9482-4a5e-8918-ca3534e0ab89&amp;coa=coa04&amp;DT=Opinion&amp;MediaID=5e64dbf1-33be-4a51-8597-2f8d3c61377a"><em>Fasken Oil and Ranch, Ltd. v. Puig</em></a>, No. 04-23-00106-CV, the San Antonio Court of Appeals was asked to construe a royalty reservation in a 1960 deed:</p>
242<p style="padding-left: 40px">There is saved, excepted and reserved, in favor of the undersigned, B.A. Puig, Jr., out of the above described property, an undivided one-sixteenth (1/16) of all the oil, gas and other minerals, except coal, in, to and under or that may be produced from the above described acreage, to be paid or delivered to Grantor, B.A. Puig, Jr., as his own property free of cost forever. Said interest hereby reserved is Non-Participating Royalty.</p>
243<p>Fasken operates wells on the property; the Puig descendants sued Fasken for deducting post-production costs from their royalty. The trial court agreed with Puig, and the court of appeals affirmed, in a well-reasoned opinion relying on the Supreme Court&#8217;s opinion in <a href="https://www.oilandgaslawyerblog.com/texas-supreme-court-rules-for-royalty-owners-in-chesapeake-v-hyder/"><em>Chesapeake Exploration v. Hyder</em></a>, 483 S.W.3d 870 (Tex. 2016). &#8220;Free and of all cost forever&#8221; means what it says and includes both production costs and post-production costs. The court distinguished <a href="https://search.txcourts.gov/Case.aspx?cn=95-0515&amp;coa=cossup"><em>Heritage Resources v. Nationsbank</em></a>, 939 S.w.2d 118 (Tex. 1996) because unlike <em>Heritage</em> the royalty clause in this reservation &#8220;does not contain a valuation point.&#8221; The lease in <em>Heritage</em> provided that royalty was payable on the market value &#8220;at the well,&#8221;
243 the point at which royalty was valued for purposes of calculating royalty; so even though the lease also provided for no deductions from the lessors&#8217; royalty, the Supreme Court said post-production costs incurred downstream of the well could be deducted.</p>
244<div class="read_more_link"><a href="https://www.oilandgaslawyerblog.com/fasken-v-puig-another-post-production-cost-case/"  title="Continue Reading Fasken v. Puig &#8211; Another Post-Production Cost Case" class="more-link">Continue reading →</a></div>
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260			<div class="published-date"><span class="published-date-label">Published on:</span> <time datetime="2024-11-07T17:05:05-06:00" class="post-date published" itemprop="datePublished" pubdate>November 7, 2024</time></div>			<div class="visuallyhidden">Updated:
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304								<p>Today the Texas Supreme Court decided <em><a href="https://www.txcourts.gov/media/1458547/240036.pdf">Carl v. Hilcorp Energy Co</a>, </em>No. 24-0036. Its opinion addresses certified questions submitted to it by the US Fifth Circuit Court of Appeals concerning a class action suit pending in that court.</p>
305<p>The Carls&#8217; lease provided for payment of gas royalty based on its &#8220;market value at the well.&#8221; The lease also provided that royalty must be paid on gas &#8220;sold or used off the premises.&#8221; Hilcorp used some of the gas produced &#8220;off the premises&#8221; to transport or process the gas produced from the lease. Hilcorp did not pay royalty on the gas used. The Texas Supreme Court agreed with Hilcorp that it owes no royalty on the gas used off the premises.</p>
306<p>This is another in a long line of cases in which the Court relies on its flawed reasoning in <em>Heritage Resources v. Nationsbank</em>. The Court&#8217;s reasoning: because the measure of gas royalty is &#8220;market value at the well,&#8221; the lessor must bear its share of post-production costs. Hilcorp&#8217;s use of gas for post-production costs must therefore be part of the cost borne by the lessor. One way to do that is to not pay royalty on the gas used. So, even though the lease provides for royalty on gas &#8220;used off the premises,&#8221; Hilcorp need not pay royalty on such gas as long as it is used to enhance the value of the gas after it leaves the lease. If Hilcorp were to use some of the gas for other purposes, royalty would be due.</p>
307<div class="read_more_link"><a href="https://www.oilandgaslawyerblog.com/texas-supreme-court-once-again-rules-against-royalty-owners-in-post-production-costs-case/"  title="Continue Reading Texas Supreme Court once again rules against royalty owners in post-production costs case" class="more-link">Continue reading →</a></div>
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367								<p>In January the US 5th Circuit Court of Appeals submitted a &#8220;certified question&#8221; to the Texas Supreme Court. Federal courts have jurisdiction over cases involving only state-law issues if the parties are from different states &#8211; diversity jurisdiction. This is one such case. <a href="https://search.txcourts.gov/Case.aspx?cn=24-0036&amp;coa=cossup"><em>Carl v. Hilcorp Energy Company</em></a>, No. 24-0036.</p>
368<p>The trustees of the Carl/White Trust sued Hilcorp Energy on behalf of royalty owners with language in their leases providing that the lessee must pay royalties on gas &#8220;sold or used off the premises.&#8221; The suit seeks class-action status on behalf of these royalty owners. The Trust&#8217;s lease also provides that royalty on gas should be paid on the &#8220;market value at the well.&#8221; Hilcorp moved to dismiss the claim, arguing that under a &#8220;market-value-at-the-well&#8221; lease, Hilcorp was allowed to deduct all post-production costs and therefore had no obligation to pay for gas used in processing. The trial court agreed with Hilcorp and dismissed the case; the Trust appealed to the 5th Circuit.</p>
369<p>When a case in federal court is governed by state law, a federal appeals court may ask the state&#8217;s top court to opine on a question of law critical to its case &#8211; to submit the question as a &#8220;certified question&#8221; to the state court.  The 5th Circuit did so here, asking the Texas Supreme Court: &#8220;can a market-value-at-the-well lease containing an off-lease-use-of-gas clause and a free-on-lease-use clause be interpreted to allow for the deduction of gas used off lease in the post-production process?&#8221; The Texas Supreme Court agreed to consider the question, and the parties have submitted briefs. Two amicus briefs, one from Texas Oil &amp; Gas Association supporting Hilcorp&#8217;s arguments, and one by Texas Land &amp; Mineral Association and National Association of Royalty Owners-Texas, Inc., supporting the Trusts&#8217; arguments.</p>
370<div class="read_more_link"><a href="https://www.oilandgaslawyerblog.com/white-v-hilcorp-heritage-v-nationsbank-again-rears-its-ugly-head/"  title="Continue Reading White v. Hilcorp &#8211; Heritage v. Nationsbank Again Rears its Ugly Head" class="more-link">Continue reading →</a></div>
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386			<div class="published-date"><span class="published-date-label">Published on:</span> <time datetime="2024-03-15T11:14:52-05:00" class="post-date published" itemprop="datePublished" pubdate>March 15, 2024</time></div>			<div class="visuallyhidden">Updated:
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413			<div class="published-date"><span class="published-date-label">Published on:</span> <time datetime="2023-08-18T13:55:26-05:00" class="post-date published" itemprop="datePublished" pubdate>August 18, 2023</time></div>
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416            <h2 class="entry-title" itemprop="name">                <a href="https://www.oilandgaslawyerblog.com/federal-district-court-addresses-post-production-costs-in-light-of-devon-v-sheppard/" itemprop="url" title="Permalink to Federal District Court Addresses Post-Production Costs in Light of Devon v. Sheppard" rel="bookmark">Federal District Court Addresses Post-Production Costs in Light of Devon v. Sheppard</a>
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430								<p>The federal district court in Pecos, Judge David Counts, issued a memorandum opinion in <em>H.L. Hawkins, Jr., Inc. v. Capitan Energy</em>, <em>Inc.,</em> P:22-CV-DC<a href="https://www.oilandgaslawyerblog.com/files/2023/08/Hawkins.pdf">[Hawkins</a>] addressing Hawkins&#8217; claim that Capitan had improperly deducted post-production costs from its royalty. The Court held that the reasoning in the recent Texas Supreme Court case of <em>Devon v. Sheppard</em> was of no help to Hawkins.</p>
431<p>Hawkins&#8217; lease reserved a royalty of &#8220;one-fourth of the gross proceeds received by Lessee,&#8221; and contained a free-royalty provision:</p>
432<p style="padding-left: 40px"><em>Lessor&#8217;s royalty shall not bear or be charged with, directly or indirectly, any cost or expense incurred by Lessee</em>, including without limitation, for exploring, drilling, testing, completing, equipping, storing, separating, dehydrating, transporting, compressing, treating, gathering, or otherwise rendering marketable or marketing products, and no such deduction or reduction shall be made from the royalties payable to Lessor hereunder, provided, however, that Lessor&#8217;s interest shall bear its proportionate share of severance taxes and other taxes assessed against its interest or its share of production.</p>
433<div class="read_more_link"><a href="https://www.oilandgaslawyerblog.com/federal-district-court-addresses-post-production-costs-in-light-of-devon-v-sheppard/"  title="Continue Reading Federal District Court Addresses Post-Production Costs in Light of Devon v. Sheppard" class="more-link">Continue reading →</a></div>
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449			<div class="published-date"><span class="published-date-label">Published on:</span> <time datetime="2023-08-18T13:55:26-05:00" class="post-date published" itemprop="datePublished" pubdate>August 18, 2023</time></div>			<div class="visuallyhidden">Updated:
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493								<p>Today the Texas Supreme Court issued its opinion in <em>Devon v. Sheppard,</em>
493 No. 20-0904, again addressing post-production cost deductions from royalties. The Court affirmed the court of appeals&#8217; ruling in favor of the royalty owners.</p>
494<p>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:</p>
495<p style="padding-left: 40px">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 &#8230; gross proceeds so that Lessor&#8217;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.</p>
496<div class="read_more_link"><a href="https://www.oilandgaslawyerblog.com/devon-v-sheppard-a-win-for-royalty-owners/"  title="Continue Reading Devon v. Sheppard &#8212; A Win for Royalty Owners" class="more-link">Continue reading →</a></div>
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547			<div class="author vcard">By <span itemprop="author" itemtype="http://schema.org/Person" itemscope><a href="http://www.gdhm.com/people_and_practices/bios/?ID=36" class="url fn author-jmcfarland1 author-2030 post-author-link" rel="author" target="_blank" itemprop="url"><span itemprop="name">John McFarland</span></a><meta itemprop="sameAs" content="https://twitter.com/TXOilGasLawPro" /><meta itemprop="sameAs" content="https://www.linkedin.com/pub/john-mcfarland/a/4a0/974" /><meta itemprop="sameAs" content="http://lawyers.justia.com/lawyer/john-mcfarland-254699" /></span></div>
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556								<p>Mayfield and Ingham leased several sections in Sutton County to EnerVest. EnerVest produces gas which goes to a gas plant for processing and pays royalty on the residue gas and natural gas liquids, after deducting post-production costs. The gas must be compressed and dehydrated before sale, and EnerVest does not pay royalty on the fuel used in compression and dehydration. Mayfield and Ingham sued EnerVest seeking royalties on the fuel gas.</p>
557<p>The San Antonio Court of Appeals held that, under the lease royalty provisions, EnerVest does not owe royalties on fuel gas.<a href="https://search.txcourts.gov/SearchMedia.aspx?MediaVersionID=56baa7b4-6c40-4fdf-b4ca-bc1a1279b6f8&amp;coa=coa04&amp;DT=Opinion&amp;MediaID=299095fa-1d14-4593-af65-5fc56f32414a"> <em>EnerVest v. Mayfield</em></a>, No. 04-21-00337-CV.</p>
558<p>The lease provides for payment &#8220;on gas produced from said land and sold <em>or used off the premises</em>, … the market value at the mouth of the well of one-eighth of the gas so sold or used.” Another lease clause provides:</p>
559<div class="read_more_link"><a href="https://www.oilandgaslawyerblog.com/enervest-v-mayfield-another-loss-for-royalty-owners-on-post-production-costs/"  title="Continue Reading EnerVest v. Mayfield &#8211; another loss for royalty owners on post-production costs" class="more-link">Continue reading →</a></div>
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602			<div class="published-date"><span class="published-date-label">Published on:</span> <time datetime="2022-02-09T17:31:48-06:00" class="post-date published" itemprop="datePublished" pubdate>February 9, 2022</time></div>
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605            <h2 class="entry-title" itemprop="name">                <a href="https://www.oilandgaslawyerblog.com/nettye-engler-energy-v-bluestone-natural-resources-texas-supreme-court-affirms-ruling-against-royalty-owner/" itemprop="url" title="Permalink to Nettye Engler Energy v. Bluestone Natural Resources: Texas Supreme Court affirms ruling against royalty owner" rel="bookmark">Nettye Engler Energy v. Bluestone Natural Resources: Texas Supreme Court affirms ruling against royalty owner</a>
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610			<div class="author vcard">By <span itemprop="author" itemtype="http://schema.org/Person" itemscope><a href="http://www.gdhm.com/people_and_practices/bios/?ID=36" class="url fn author-jmcfarland1 author-2030 post-author-link" rel="author" target="_blank" itemprop="url"><span itemprop="name">John McFarland</span></a><meta itemprop="sameAs" content="https://twitter.com/TXOilGasLawPro" /><meta itemprop="sameAs" content="https://www.linkedin.com/pub/john-mcfarland/a/4a0/974" /><meta itemprop="sameAs" content="http://lawyers.justia.com/lawyer/john-mcfarland-254699" /></span></div>
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619								<p>Last week the Texas Supreme Court handed down its <a href="https://search.txcourts.gov/SearchMedia.aspx?MediaVersionID=0f153153-6b5f-42cc-bd93-a4ad33891b9d&amp;coa=cossup&amp;DT=OPINION&amp;MediaID=5ddb279f-3c94-4610-a9a4-429099cdf885">opinion in </a><em>Nettye Engler Energy, LP v. Bluestone Natural Resources II, LLC, </em>No. 20-0639, affirming the lower court&#8217;s ruling that Engler&#8217;s royalty interest bears its share of gas gathering and processing costs.</p>
620<p>Engler owns a royalty interest in a section of land in Tarrant County on which Bluestone owns a lease and operates gas wells. Engler’s royalty interest originated in a deed in which the grantor reserved a one-eighth non-participating royalty interest. The deed provides that the grantor reserves “a free one-eighth (1/8) of production … to be delivered to Grantor’s credit, free of cost in the pipe line, if any, otherwise free of cost at the mouth of the well or mine.”</p>
621<p>
621Bluestone contracted with Crestwood Equity Partners to gather its gas through a gathering system owned by Crestwood and deliver it to various delivery points through a processing plant and into a pipeline owned by Energy Transfer, where the gas is sold. Bluestone deducted the gathering fees charged by Crestwood from Engler’s royalty, and the plant processing fees incurred before the gas was sold.<span id="more-2088"></span></p>
622<div class="read_more_link"><a href="https://www.oilandgaslawyerblog.com/nettye-engler-energy-v-bluestone-natural-resources-texas-supreme-court-affirms-ruling-against-royalty-owner/"  title="Continue Reading Nettye Engler Energy v. Bluestone Natural Resources: Texas Supreme Court affirms ruling against royalty owner" class="more-link">Continue reading →</a></div>
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638			<div class="published-date"><span class="published-date-label">Published on:</span> <time datetime="2022-02-09T17:31:48-06:00" class="post-date published" itemprop="datePublished" pubdate>February 9, 2022</time></div>			<div class="visuallyhidden">Updated:
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682								<p>Two recent decisions from two federal judges in the Southern District of Texas, Houston Division, dismissed suits alleging class actions against Apache and Hilcorp for failure to pay royalties on gas used in gas processing plants. Both construed identical lease provisions.</p>
683<p>In <em>Carl v. Hilcorp Energy</em>, No. 4:21-CV-02133, Judge Keith Ellison construed a lease with the following provisions:</p>
684<p style="padding-left: 40px">The royalties to be paid be Lessee are: &#8230; on gas, including casinghead gas or other gaseous substance, produced from said land and sold or used off the premises or in the manufacture of gasoline or other product therefrom, the market value at the well of one-eighth of the gas so sold or used ..</p>
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700			<div class="category-list"><span class="category-list-label">Posted in:</span> <span class="category-list-items"><a href="https://www.oilandgaslawyerblog.com/category/post-production-costs/" title="View all posts in Post-Production Costs" class="category-post-production-costs term-8 post-category-link">Post-Production Costs</a> and <a href="https://www.oilandgaslawyerblog.com/category/recent-cases/" title="View all posts in Recent Cases" class="category-recent-cases term-6 post-category-link">Recent Cases</a></span></div>			
701			<div class="published-date"><span class="published-date-label">Published on:</span> <time datetime="2022-01-13T14:54:28-06:00" class="post-date published" itemprop="datePublished" pubdate>January 13, 2022</time></div>			<div class="visuallyhidden">Updated:
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728			<div class="published-date"><span class="published-date-label">Published on:</span> <time datetime="2021-03-24T16:06:30-05:00" class="post-date published" itemprop="datePublished" pubdate>March 24, 2021</time></div>
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731            <h2 class="entry-title" itemprop="name">                <a href="https://www.oilandgaslawyerblog.com/bluestone-v-randle-a-win-for-royalty-owners-on-post-production-costs/" itemprop="url" title="Permalink to BlueStone v. Randle &#8212; A Win for Royalty Owners on Post-Production Costs" rel="bookmark">BlueStone v. Randle &#8212; A Win for Royalty Owners on Post-Production Costs</a>
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733                <meta itemprop="headline" content="BlueStone v. Randle &#8212; A Win for Royalty Owners on Post-Production Costs" />
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736			<div class="author vcard">By <span itemprop="author" itemtype="http://schema.org/Person" itemscope><a href="http://www.gdhm.com/people_and_practices/bios/?ID=36" class="url fn author-jmcfarland1 author-2030 post-author-link" rel="author" target="_blank" itemprop="url"><span itemprop="name">John McFarland</span></a><meta itemprop="sameAs" content="https://twitter.com/TXOilGasLawPro" /><meta itemprop="sameAs" content="https://www.linkedin.com/pub/john-mcfarland/a/4a0/974" /><meta itemprop="sameAs" content="http://lawyers.justia.com/lawyer/john-mcfarland-254699" /></span></div>
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745								<p style="text-align: left"><a href="https://www.oilandgaslawyerblog.com/files/2020/03/Top-Ten.jpg"><img decoding="async" class="wp-image-1916 alignright" src="https://www.oilandgaslawyerblog.com/files/2020/03/Top-Ten.jpg" alt="Top-Ten" width="103" height="136" srcset="https://www.oilandgaslawyerblog.com/files/2020/03/Top-Ten.jpg 637w, https://www.oilandgaslawyerblog.com/files/2020/03/Top-Ten-226x300.jpg 226w, https://www.oilandgaslawyerblog.com/files/2020/03/Top-Ten-91x120.jpg 91w" sizes="(max-width: 103px) 100vw, 103px" /></a>On March 12 the Texas Supreme Court issued its opinion in <em>BlueStone Natural Resources II, LLC v. Walker Murray Randle, </em>No. 19-0459, affirming most of the judgment of the court below in favor of the royalty owners. The Court&#8217;s opinion contains a summary and discussion of its prior cases on post-production costs and attempts to reconcile those prior opinions and clarify its views on the issue. I believe the opinion does provide clarification and substantially reduces the precedential value of its first case addressing post-production costs, <em>Heritage v.</em> <em>Nationsbank. </em>The Court also discusses when royalties must be paid on gas used as fuel. Because I consider this an important case on post-production costs, I will examine the opinion in some detail. <a href="https://www.oilandgaslawyerblog.com/bluestone-v-randle-a-win-for-royalty-owners-on-post-production-costs/#more-2129" class="more-link">Continue reading →</a></p>
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760			<div class="category-list"><span class="category-list-label">Posted in:</span> <span class="category-list-items"><a href="https://www.oilandgaslawyerblog.com/category/post-production-costs/" title="View all posts in Post-Production Costs" class="category-post-production-costs term-8 post-category-link">Post-Production Costs</a> and <a href="https://www.oilandgaslawyerblog.com/category/recent-cases/" title="View all posts in Recent Cases" class="category-recent-cases term-6 post-category-link">Recent Cases</a></span></div><div class="tag-list"><span class="tag-list-label">Tagged:</span> <span class="tag-list-items"><a href="https://www.oilandgaslawyerblog.com/tag/oilandgaslaw/" title="View all posts tagged with oilandgaslaw" class="tag-oilandgaslaw term-70 post-tag-link">oilandgaslaw</a></span></div>			
761			<div class="published-date"><span class="published-date-label">Published on:</span> <time datetime="2021-03-24T16:06:30-05:00" class="post-date published" itemprop="datePublished" pubdate>March 24, 2021</time></div>			<div class="visuallyhidden">Updated:
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