Devon Energy Production Company, L.P. v. Sheppard is a royalty dispute between several lessees, Devon Energy Production Co., L.P., et. al., and several lessors, Michael A. Sheppard, et. al., concerning a novel royalty term that may have a huge impact on the way oil and gas royalties are paid in the future.  See 13-19-00036-CV, 2020 WL 6164467, at *12 (Tex. App.—Corpus Christi Oct. 22, 2020, pet. filed).  The novel term, referred to as an “add-back” or “add-to-proceeds” provision, requires any deductions to the sale of production to be added back to the proceeds in order to determine the appropriate royalty base.  The lessors argue that under this term, the deductions in the lessees’ sales contracts attributable to the buyers’ post-transfer costs must be added to the gross proceeds in order to establish a royalty base above the gross proceeds.  The lessees disagree, countering that the clear intent of the provision is merely to prohibit the deduction of their own post-production costs, not the post-transfer costs of the buyers.  The lessors won in the trial court; the court of appeals affirmed.  Now the case is before the Texas Supreme Court, with a recently submitted amicus brief containing the argument that could turn the tides back in the lessees’ favor. …
Continue Reading New Developments in Shocking Case Before the Texas Supreme Court Regarding Construction of Novel Oil & Gas Royalty Term