For nearly a decade after the Texas Supreme Court’s decision in Chesapeake Exploration, L.L.C. v. Hyder, 483 S.W.3d 870 (Tex. 2016), practitioners have debated how far the court’s willingness to give effect to “cost-free” royalty language would truly extend. In Fasken Oil & Ranch, Ltd. v. Puig, No. 24-1033, 2026 Tex. LEXIS 289 (Tex. Apr. 10, 2026), the court answered that question more definitively than any prior decision: in essence, not far.
The court held that a 1960 nonparticipating royalty reservation on minerals “produced from the above described acreage, to be paid or delivered to Grantor… as his own property free of cost forever” is subject to deduction of postproduction costs, reversing the San Antonio Court of Appeals decision below (reported at Puig v. Fasken Oil & Ranch, Ltd., 726 S.W.3d 499 (Tex. App.—San Antonio 2024)), which had relied on Hyder to reach the opposite conclusion. In the court’s view, “free of cost forever” merely restated the default rule that a nonparticipating royalty is free of exploration and production costs but bears postproduction costs, and “forever” operated as a temporal modifier rather than a geographic one.
I. Background: the Deed and the Dispute
In 1960, B. A. Puig, Jr., conveyed Webb County ranchland to Palafox Exploration Company and reserved “an undivided one-sixteenth (1/16) of all the oil, gas and other minerals, except coal, in, to and under or that may be produced from the above described acreage, to be paid or delivered to Grantor, B. A. Puig, Jr., as his own property free of cost forever.” The deed identified the reservation as a “Non-Participating Royalty” interest. Fasken Oil and Ranch, Ltd., as successor in interest to Palafox, later produced oil and gas from wells on the property, transported and processed the minerals downstream, and sold the resulting condensate and natural gas. When calculating royalty payments to B. A. Puig, Jr.’s successors (the Puigs), Fasken historically deducted the postproduction costs between wellhead and point of sale, using the resulting wellhead market value to compute the 1/16 royalty. The Puigs conceded that their historical royalty payments had always reflected these deductions.
In 2021, the Puigs sued Fasken and sought a declaration that their royalty was free of postproduction costs. The Puigs contended that a downstream sales price was implied by the “free of cost forever” language and by the deed’s failure to specify any valuation point for the produced minerals, so the royalty had to be calculated on the sales price of enhanced minerals rather than the market value of raw minerals at the well. Fasken responded that the royalty was calculated based on the value of minerals “produced from the above described acreage,” not a downstream sales price. On cross-motions for summary judgment, the trial court ruled for the Puigs and certified an interlocutory appeal. The San Antonio Court of Appeals affirmed, relying on Hyder for the proposition that “free of cost forever” expressed an intent to free the royalty of downstream costs. The Texas Supreme Court granted review and reversed.
II. The Default Rule, and Two Routes to Deviate
The court framed its analysis around the two routes recognized to deviate from the default rule, as discussed in Devon Energy Production Co. v. Sheppard, 668 S.W.3d 332 (Tex. 2023). The court began with the default rule: a nonparticipating royalty generally bears postproduction costs incurred to prepare raw minerals for sale, including taxes, treatment, and transportation. Parties may deviate from this default in two primary ways: by setting the royalty’s valuation point downstream of the well (through terms such as “gross proceeds” or “amount realized”), or by expressly adding some or all postproduction costs to the royalty base. See also BlueStone Natural Resources II, LLC v. Randle, 620 S.W.3d 380 (Tex. 2021). The court held that the Puig Deed did neither.
III. “Produced From” is Equivalent to “At the Well”?
The court then turned to analysis of the valuation point, which is perhaps the most notable aspect of the opinion. The court held that the deed’s reference to minerals “produced from the above described acreage” fixed the valuation point at the wellhead, essentially treating that geographic reference as the functional equivalent to “at the well” language. The court relied on the ordinary meaning of “produce” as denoting creation rather than refinement of an existing product, observing that production for raw gas “occurs at the wellhead,” and reasoned that “absent contrary language, a royalty in minerals ‘produced’ and nothing more is a royalty valued at the well.”
The court drew on Carl v. Hilcorp Energy Co., 689 S.W.3d 894 (Tex. 2024), in which a royalty on gas “produced from said land and sold or used off the premises” had been treated as calculated at the well. In the court’s view, “produced from the above described acreage” was functionally equivalent to the “at the well” marker in Carl, identifying “the physical spot at which [the Puigs’] interest in the products arises” and indicating a royalty in the minerals “as they come out of the ground, not after… post-production efforts have increased the[ir] value.”
IV. “Free of Cost Forever” Becomes Surplusage
With the valuation point fixed at the well, “free of cost forever” had nothing left to operate on. At-the-well valuation already nets postproduction costs out of the royalty base, so there were no costs left for “free of cost forever” to bar. The court held that “forever” was a temporal modifier, not a geographic one. Here the court leaned on Heritage Resources, Inc. v. NationsBank, 939 S.W.2d 118 (Tex. 1996), which held that anti-deduction language is surplusage whenever a royalty is already valued at the well, because at-the-well valuation mathematically nets postproduction costs from the base and leaves “no[] postproduction costs to ‘deduct.’”
The phrase “free of cost forever,” the court reasoned, restated the default rule that a royalty is free of production costs and distinguished the reservation from a mineral interest that traditional “in, to and under” language would otherwise create. The court drew on Temple-Inland Forest Products Corp. v. Henderson Family Partnership, Ltd., 958 S.W.2d 183 (Tex. 1997), for the proposition that “free of cost” language in such a deed operates to clarify the nature of the reserved interest as a royalty rather than as a mineral interest.
The Puigs argued that the deed’s express designation of the interest as a “Non-Participating Royalty” made the “free of cost” language unnecessary for that clarifying purpose, so the phrase had to be doing some other work. The court rejected that argument, reasoning that drafters commonly use cost-free language to stress that a reservation is free of production costs even when other language makes the same point.
V. Reframing Hyder: About the Parenthetical, Not the Lack of Valuation Location
The Hyder discussion will draw the most practitioner attention. In Hyder, the first two royalty clauses resolved on their valuation points; the cost-free dispute arose on the third, a “perpetual, cost-free (except only its portion of production taxes) overriding royalty of five percent (5.0%) of gross production obtained” from directional wells. The court reframed Hyder as a decision that turned on the parenthetical exempting “production taxes” from that “cost-free” term, rather than on the absence of a valuation point. Cost-free language alone, the court explained, “does not free a royalty of postproduction costs because it says nothing about a valuation point.”
The parenthetical in Hyder, the court reasoned, provided “crucial context”: because production taxes are themselves a postproduction cost, their carve-out from the “cost-free” term signaled intent to exclude other postproduction costs as well. The court characterized this through the “no dogs allowed, except for cats” formulation from Hyder itself, treating the internal inconsistency within the clause as a signal that the parties intended to deviate from the default rule. Absent comparable language, “free of cost forever” could not reallocate postproduction costs.
VI. The “Paid or Delivered” Question: Whose Choice?
The court also addressed the deed’s in-kind language. The deed provided that the royalty was “to be paid or delivered” but did not specify who chose between the two alternatives. The court treated this as a meaningful departure from Hyder and Burlington Resources Oil & Gas Co. v. Texas Crude Energy, LLC, 573 S.W.3d 198 (Tex. 2019), in which the royalty owner had held an express contractual right to elect the method of delivery.
Burlington Resources had observed that it would be “strange” for a royalty’s value to turn on the method of delivery, because the choosing party could manipulate the calculation by electing its preferred method. The court extended that reasoning to the absence of a choice mechanism: where the deed names no elector, each side has an incentive to pick the method that favors it, so the court reasoned that a wellhead valuation would equalizes the two, which it believed to be a more plausible reading.
VII. The Bigger Move: Expanding Heritage’s Reach
In the author’s view, the opinion’s most impactful aspect is not its analysis of Hyder, but instead its extension of Heritage to include the phrase “produced from” among the list of valuation location language that will often materially control the deductibility of post-production costs. Indeed, once the court determined the royalty was essentially to be valued at the well, the additional “free of cost” phrase had no material impact on the calculation. In that light, the outcome in Hyder is perhaps limited to rare language. That line of cases, allowing language to be treated as ineffective “surplusage,” has frustrated landowner lawyers for decades: Heritage itself involved anti-deduction language that expressly prohibited deductions for “processing, cost of dehydration, compression, transportation or other matter to market such gas,” and the clause still failed on the surplusage point. What the Fasken case adds to the body of law, without quite saying so, is to perhaps expand the kinds of deeds where the Heritage “at the well” rule kicks in. By holding that “produced from” is functionally equivalent to “at the well,” the court arguably impacted a broad body of historic Texas deed forms reserving royalty interests “produced from” the land, which now carry an implied wellhead valuation location.
VIII. What’s Left of Hyder?
The Hyder reframing is the more visible development, and in the author’s view it sits in greater tension with Hyder’s own reasoning than the opinion explores. Hyder’s own language treated “cost-free” as doing substantive work, describing the phrase as one that “may ‘literally refer[] to all costs.’” The parenthetical carve-out was discussed as confirming that reading. Fasken now describes the parenthetical as the “crucial context” without which “cost-free” language would do nothing, a recharacterization that comes closer to inverting Hyder’s reasoning than to cabining it.
Arguably, a more direct summary of Hyder is that it turned on two things, both of which had to be present: the absence of any valuation-point language in the royalty clause, and the parenthetical signaling intent to deviate from the default. Both were necessary in Hyder, and the practitioner reading that emphasized the first condition is not wrong so much as incomplete.
IX. Takeaways for Practitioners
This case is notable for several reasons. But to reduce it down to two things to remember: First, it forecloses a reading of Hyder that, if a royalty provision does not define a valuation location, then cost-free or no-deducts clauses are automatically sufficient to free a royalty from post-production costs. Second, the case adds the phrase “produced from” to the list of phrases that Texas courts have found to establish a wellhead-equivalent valuation point, thereby making way for interpreting cost-free or no-deducts provisions as “surplusage.”
