Cartwright v. Cologne Production Co

In Cartwright v. Cologne Production Co., 182 S.W.3d 438 (Tex. App.--Corpus Christi 2006, pet. denied), the court addressed whether the operators there improperly deducted the costs of treating and compressing the produced gas from royalties. One of the activities that the operators charged against royalty was the removal of hydrogen sulfide. Id. at 442-43. The trial court granted the operators' summary judgment motion that no genuine issue of material fact existed regarding the operator entitlement to deduct postproduction marketing expenses. The Corpus Christi court held that the trial court did not err when it granted the summary judgment motion because the operators were entitled to deduct compression and treatment costs, which included the removal of hydrogen sulfide, in computing gas royalties owed to lessors. Id. at 446. In reaching this decision, the court discussed the general rule in Texas that production costs are not chargeable to royalty interest owners. Id. at 444-45. Additionally, it provided, "Whatever costs are incurred after production of the gas or minerals are normally proportionately borne by both the operator and the royalty interest owners. These postproduction costs include taxes, treatment costs to render the gas marketable, compression costs to make it deliverable into a purchaser's pipeline, and transportation costs." Id.