Texas Oil and Gas Attorney Blog

The El Paso Court of Appeals published an interesting opinion about the rights of a lessor to royalties from a non-operating co-tenant oil company. The case is Pioneer Natural Resources v. Elberta M. Royalty, 2026 WL 2435350 (Tex.Civ.App.-El Paso no pet.).

In this case, the operator was Henry Resources LLC. Henry had a joint operating agreement with Pioneer, which was the non-operating co-tenant. The joint operating agreement provided that Pioneer would not get paid royalties until after payout. Pioneer had signed a lease with Elberta, which provided for payment of royalties beginning with first production. Henry drilled producing wells but did not begin paying Pioneer until after payout. Elberta sent a demand letter to Pioneer, demanding royalties beginning with first production of the Henry wells. Pioneer refused.

The Court of Appeals held that Pioneer owed Elberta royalties since first production and interest on those royalties due to their late payment.

An interesting case was decided a few months ago by the Federal District Court for the Western District. That case is YMC Royalty Co. LP v WPX Energy Permian LLC, 2026 WL 2211771 (W.D. Texas 2026).

YMC had signed a lease with WPX’ predecessor. The lease provided for lease termination in the event of nonpayment of royalty. WPX deducted a “gathering fee” from the royalties it paid YMC.  YMC claimed these were not allowed by the lease and demanded a refund of all deductions from royalties. In its demand letter, YMC wrote that “the lease will terminate in 30 days from this notice date unless WPX complies with its express obligations under the Lease.” WPX refunded the gathering fees and claimed they had been deducted due to an accounting error. Next, YMC filed suit, claiming the lease had terminated because WPX had not paid royalty on plant fuel and flared gas and had made improper deductions on NGLs.

First the Court held that an underpayment constitutes a nonpayment of royalties under the lease. However, YMC in its demand letter failed to specify the deductions that it claimed were not authorized by the lease. YMC simply sent a very general demand letter. As a result, the Court held that there had been no lease termination.

In Evans Resources, L.P. v. Diamondback E&P, LLC, 725 S.W.3d 718, 726 (Tex. Civ. App. Eastland 2025, no pet.), the Eastland Court of Appeals heard a case in which one of the claims by the landowners was that the Defendant, Diamondback E&P LLC, had verbally represented that it would drill horizontal wells from four specific locations. Instead, Diamondback drilled three vertical wells and the landowners sued.

The lease between the parties stated that additional wells and their locations were up to the lessee’s discretion. Relying on a recent Texas Supreme Court case, Roxo Energy Co., LLC v. Baxsto, LLC, 713 S.W.3d 404 (Tex. 2025), the Court of Appeals held that reliance upon oral representations which were directly contradicted by express, unambiguous terms of the lease agreement is not justified as a matter of law, and so there was no fraud by Diamondback.

Recently the Corpus Christi Court of Appeals addressed a statute of frauds issue in Alcott v. 1893 Oil and Gas Ltd., No. 13 23-00492-CV, 2025 WL 2858113, at *3 (Tex. Civ. App.—Corpus Christi–Edinburg Oct. 9, 2025, no pet.).  Initially, there was an agreement between USIR, a real estate investment firm, and an individual, Edward Mattison, in which Mattison agreed to purchase all of the surface and 3/4 of the minerals in a 2092.08-acre tract in Live Oak County, Texas. Mattison was to pay the purchase price in monthly installments and received deeds from USIR for several tracts. Mattison never completed the sale for the rest of the mineral interests.

Mattison later sold some acreage to Cosgrove and Cosgrove then sold eight acres to Robert Alcott via warranty deed. That deed stated that it conveyed “an undivided interest in an undivided one-half of any and all oil, gas or minerals that may be found to be in, under or upon any part of said tract of 2,092.08 acres”.  Still later 1893 Oil and Gas Ltd. acquired what they believed to be exclusive rights to the minerals. Alcott’s heirs filed suit requesting a declaration of ownership of the mineral interests described in the deed to Robert Alcott.

The Court of Appeals noted that Cosgrove did not have title to the entire 2,092.08 acres when the Alcott Deed was executed and never subsequently acquired title. The Alcott deed purported to convey an interest in minerals “upon any part of said tract of 2,092.08 acres,” and yet contained no qualifying language indicating that Cosgrove intended to transfer only an interest in minerals on the land he actually owned. The Court held that since the Alcott deed failed to identify the portions of the mineral interest he actually owned, the deed was void under the Texas statute of frauds.

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.