Texas Oil and Gas Attorney Blog

Recently, in Fasken Oil and Ranch Ltd. v. Puig et al, the Texas Supreme Court addressed a claim by a nonparticipating royalty owner that its royalties should be free of post-production costs.

In the deed that created the nonparticipating royalty, the royalty owner received an undivided one-sixteenth interest in all oil, gas, and other minerals. The deed said the nonparticipating royalty would be “free of cost forever”. The lessee and operator deducted postproduction costs from the nonparticipating royalty and this lawsuit resulted.

The trial court granted summary judgment for the nonparticipating royalty owner and the Court of Appeals affirmed that judgment. The Texas Supreme Court reversed. The Court said that “the deed reserves a royalty on minerals ‘produced from the above-described acreage,’ not a royalty on minerals transported, processed, or otherwise enhanced for sale at an unspecified downstream point. The deed lacks language indicating that the royalty is calculated based on processed gas at a point downstream rather than gas produced at the well. Nor does the deed specify that the royalty is based on gross proceeds from a downstream sale”. The Court said the phrase “free of cost forever” merely describes what royalty is, i.e., a payment free of exploration and production costs.

Recently the Texas Supreme Court in Clifton v. Johnson addressed another double fraction of royalties case. The issue was whether the original deed in 1951 granted a fixed or floating royalty interest.

The deed granted a “1/128 (1/16 of the usual 1/8 royalty) as royalty”. For over 70 years, the mineral owner was paid a fixed 1/128 royalty. However, in 2020 the Plaintiff, successor to the original grantee, claimed the deed actually granted a floating 1/16 royalty. The Court held that the “deed’s plain language rebuts the presumption by showing that the parties used 1/8 for its ordinary numerical value, not as a term of art.

The Court looked to the language of the deed, which stated:

In the recent case of Cactus Water Services LLC v. COG Operating LLC, the Texas Supreme Court addressed the question of who owns produced water resulting from oil and gas production.

Produced water, consisting of salt water mixed with oil, drilling fluids and fracking fluids, has long been considered to be waste. Operators customarily hire a company to haul it away and dispose of it. Disposal of produced water is highly regulated by the state and is often a major expense for operators. However, new technologies have resulted in the cleaning and reconditioning of this former waste product. While the resulting water is not potable, it is sufficiently clean to use in other ways, such as for fracking, which uses a lot of water. As a result, produced water, instead of being a liability, is becoming a valuable commodity.

This case involved the question of just who owns the produced water: the surface owner, or the mineral owner and operator/lessee. COG Operating LLC (“COG”) operated four leases covering 37,000 acres in Reeves County. The leases grant COG the exclusive right to explore for, produce, and keep “oil and gas” or “oil, gas, and other hydrocarbons”. The leases were silent regarding waste. Wells on those leases were fracked, using large quantities of water. Some of the injected fluid returned to the surface, and consisted of water, hydrocarbons and various other substances such as potassium, strontium, barium, iron, carbon dioxide, hydrogen sulfide, and chloride. The kinds of substances in the returning fluid depend on the fracking chemicals used and the geology of the formation being produced.

The Texas Supreme Court recently decided a case involving the enforceability of verbal representations. In the case of Roxo Energy Co. v. Baxsto, LLC, No. 23-0564, 2025 WL 134581 (Tex. May 9, 2025) (per curiam).

Baxsto and Roxo engaged in discussions regarding Baxsto’s leasing its minerals to Roxo. Later these discussions evolved into Baxsto selling its minerals in Howard and Borden Counties to Roxo. That sale was closed. Later, Baxsto claimed that Roxo made the following false representations in these negotiations: 1) that Roxo would give Baxsto the most favorable deal of any owner in the area if it would lease quickly; 2) that Roxo planned to make its money on the lease by drilling and developing the land itself and did not intend to resell the mineral interests and 3) that Roxo would not record the memorandum of lease before it paid Baxsto a $5,000 per acre bonus.

Roxo ended up selling the lease, paid another mineral owner an $11,000 per acre bonus, and recorded the memorandum before paying the bonus to Baxsto. Baxsto alleged that these representations were false, and because it relied on them, it was locked into an unproductive lease, and it received lower than market value for its mineral interests.

The Fifth Circuit Court of Appeals decided an interesting case involving recoupment of overpaid oil and gas royalties. In DDR Weinert, Ltd. v. Ovintiv USA, Inc., No. 23-50479, 2025 WL 636315 (5th Cir. Feb. 27, 2025), a family named Richter owned four tracts in Karnes County, Texas. They sold those tracts to DDR.

Ovintiv (formerly Encana), the operator of the wells on the property, discovered that the Richters had been overpaid approximately $608,000.00 in royalties since 2016. Ovintiv notified DDR that it would be recouping the overpayment through deductions to DDR’s royalties, even though the overpayment was made to the prior mineral owner. Naturally, DDR filed suit.

Equitable recoupment is a commonly accepted remedy in the oil and gas industry. The Court stated that the criteria for equitable recoupment are: (1) an overpayment was made, and

In Scout Energy Management, LLC v. Taylor Properties, 704 S.W.3d 544 (2024), the Texas Supreme Court addressed a case where the Plaintiff claimed that two leases had terminated because a shut in royalty payment was made late.

The leases in question had a pretty standard shut in royalty clause that allowed a payment of $50.00 per well per year to maintain the leases when there was neither sale nor use of produced gas. Production on the only well ceased in September 2017. Scout’s predecessor, ConocoPhillips, made shut in royalty payments for each lease to the Lessor in September 2017. Then in October 2017, Scout made second shut in royalty payments to the Lessor on both leases.

Scout next made shut in royalty payments to the Lessor in December 2018. The Lessor sued and requested declaratory judgment that the leases had terminated.