Devon Energy Production Company, L.P., Devon Energy Corporation, BPX Operating Company, and BPX Production Company v. Robert Leon Oliver

Summary

The Thirteenth Court of Appeals of Texas held that the oil and gas leases established a royalty valuation point at the wells, despite addendum provisions allocating post-production costs. The court concluded that the trial court improperly instructed the jury to value royalties at a downstream Houston Ship Channel location, reversed the judgment awarding approximately $15.8 million in damages, and remanded for further proceedings.

Holdings

1. The leases establish the royalty fraction, yardstick, and valuation point as the average posted market price of one-fifth of the oil at the wells as of the day it is run to the pipeline or storage tanks.
2. The addendum's post-production-cost provision supersedes the corresponding cost language in the form provision but does not change the well valuation point; at that valuation point, the provision is surplusage because no post-production costs are incurred at the well.
3. The trial court's summary judgment findings and jury charge improperly construed the leases by permitting damages based on downstream market value, and the error was harmful because it probably caused the rendition of an improper judgment.

Questions Presented

1. Whether the oil and gas leases established the royalty valuation point at the wells as of the day the oil was run to the pipeline or storage tanks.
2. Whether the addendum provisions concerning market value, royalty percentages, and post-production costs superseded or rendered ambiguous the form provision establishing the valuation point.
3. Whether the trial court's summary judgment findings and jury charge improperly permitted damages to be calculated using a downstream market value.
4. Whether the jury-charge error was harmful.

Disposition

reversed_and_remanded