August 25, 2015 Articles

Texas High Court Rules Overriding Royalty Not Subject to Postproduction Expenses

A synopsis of the case and an interview with counsel for the leaseholder.

By Jack Edwards – August 25, 2015

The Texas Supreme Court ruled in Chesapeake Exploration, LLC v. Hyder that an overriding royalty was not subject to postproduction expenses under the terms of the parties’ agreement. No. 14-0302, 2015 WL 3653446, 2015 Tex. LEXIS 554 (Tex. June 12, 2015). An overriding royalty under Texas law is “a given percentage of the gross production carved from the working interest but, by agreement, not chargeable with any of the expenses of operation.” While an overriding royalty is usually free of production expenses, it is usually subject to postproduction expenses. But, according to the 5–4 majority, the terms of the Hyder lease freed the overriding royalty from postproduction expenses.

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