Texas Supreme Court: Simple Interest Applies to Late Royalty Payments

In a recent case, the Texas Supreme Court considered whether interest on late royalty payments was supposed to be simple or compound interest.

In Samson Exploration, LLC v. Bordages, 662 S.W.3d 501, 2024 (Tex. June 7, 2024), the Plaintiff’s oil and gas leases had a late charge provision that provided for interest on unpaid royalties at a rate of 18% and said the charge was due and payable on the last day of each month. When Samson paid previously unpaid royalties to the Plaintiff, it included simple interest. The Plaintiff claimed that the interest should be compounded.

The Court looked at cases and laws in other states and said that there is a modern-day general rule that compound interest will not be imposed absent clear and specific contractual or statutory authorization. The Court stated that compound interest is disfavored, and that interest on late royalties should not be compounded absent an express, clear, and specific provision for compound interest. The Court went on to say that language such as “per annum”, “annually”, or “monthly”, by themselves, are insufficient to sustain the assessment of compound interest.