In 1960 B. A. Puig, Jr., the Puigs' predecessor, sold Webb County ranchland to Palafox Exploration Company and reserved "an undivided one-sixteenth (1/16) of all the oil, gas and other minerals . . . in, to and under or that may be produced from the above described acreage," to be paid or delivered to him "free of cost forever," as a "Non-Participating Royalty".¹ Fasken, as Palafox's successor, operates wells on the relevant leaseholds and, after producing the minerals, transports, treats, processes, and sells them downstream, and it has historically valued the Puigs' royalty at the well by deducting postproduction costs from the downstream sales price.² The Puigs do not dispute that their royalty payments have historically been burdened by postproduction costs.³

In 2021 the Puigs sued Fasken, seeking a declaration that their royalty is free of downstream postproduction costs and computed on the downstream sales price of enhanced minerals, and Fasken responded that the royalty is based on gas "produced from the above described acreage," valued at the well.¹ On cross-motions the trial court granted summary judgment for the Puigs, ruling the royalty is calculated free of postproduction costs except severance taxes, and certified the controlling question of law whether the "free of cost forever" language precludes deducting postproduction costs.² The Fourth Court of Appeals (San Antonio) accepted the appeal and affirmed, relying on Chesapeake Exploration v. Hyder.³ The vehicle in this Court is a petition for review filed by Fasken, argued March 3, 2026, and decided April 10, 2026.⁴

Petition for review from the Fourth Court of Appeals (San Antonio) in an interlocutory appeal after cross-motions for summary judgment; argued March 3, 2026, and decided April 10, 2026.⁵

Fasken presents one issue:¹ whether the court of appeals erred in holding as a matter of law that the phrase free of cost forever, without more, is the parties' agreement that the royalty is free from postproduction costs, notwithstanding the general rule that a royalty is free of production costs but bears its share of postproduction costs unless the parties agree otherwise. The Court framed it as whether a "free of cost" royalty is calculated on gas produced at the wellhead or on gas processed and sold downstream.²

Where the trial court grants one cross-motion for summary judgment and denies the other, the Court reviews both, determines all questions presented, and renders the judgment the trial court should have rendered; it construes the deed as a whole, giving terms their plain, grammatical, and ordinary meaning.¹

Whether "free of cost forever" frees the royalty from postproduction costs.

Fasken (Petitioners): The court of appeals turned Hyder on its head: because the general term "cost-free" does not distinguish between production and postproduction costs, parties who want to depart from the general rule that a royalty bears its share of postproduction costs must say more, and the deed here reserves a royalty on minerals produced at the well.¹

Puigs (Respondents): Under Hyder, the general term "cost-free" literally refers to all costs and achieves the same end as provisions that expressly bar deducting postproduction costs, so the deed's express language trumps the default rule, and Fasken must show why it cannot refer to postproduction costs here.²

Fasken argued that the question whether "free of cost forever," without more, frees a royalty from postproduction costs required correction of a decision that conflicts with the Court's royalty cases.¹ The Puigs answered that Fasken ignores Hyder and was creating a grant-worthy issue.²

• "Free of cost forever." Told the language seems pretty clear, petitioners' counsel answered that Hyder reads such wording as stressing that a royalty is free of production costs. (Oral Argument, 0:01:36; 0:03:38)
• Sixty years of practice. A Justice pressed petitioners' counsel on whether the plaintiffs' bearing of their share of postproduction costs for sixty years belongs in the context. (Oral Argument, 0:15:32)
• Where royalty is valued. Asked where the royalty is valued if not on the premises, respondents' counsel said either at the well or at the proceeds, meaning the first unaffiliated sale. (Oral Argument, 0:19:15; 0:20:16)
• School children. Asked whether ruling for petitioners would make Texas schoolchildren owe postproduction costs, counsel said the General Land Office has statutory protections that are not present here. (Oral Argument, 0:17:04; 0:18:12)
• "At the well" for gas. Respondents' counsel said "at the well" is a fiction for gas, which has no market value there, and that the Court has not decided that question. (Oral Argument, 0:24:29; 0:25:32)
• More than a royalty. Petitioners' counsel closed by arguing that a royalty is what you get free of exploration and production costs, and nothing here gives respondents more. (Oral Argument, 0:46:07)

• Texas General Land Office supports the Puigs: "cost-free" should be read as literally meaning free of cost.
• Texas Oil & Gas Association supports Fasken: courts of appeals need consistent and correct interpretation of "free of cost" and "cost-free" royalty language.
• Texas Land and Mineral Owners Association, et al. also filed an amicus brief.

Holding

A royalty reserved on minerals "produced from the above described acreage" "free of cost forever" is valued on the raw minerals at the wellhead, so the "free of cost forever" language refers to exploration and production costs and does not preclude deducting postproduction costs from a downstream sales price to arrive at the market value of the raw minerals at the wellhead.¹

Reasoning

Default rule and two ways around it. Unless the parties agree otherwise, a nonparticipating royalty is free of the costs of exploration and production but bears postproduction costs incurred to prepare raw oil or gas for sale, and a deed departs from that rule by setting the valuation point downstream of the well or by employing explicit terms that add postproduction costs to the royalty base; this deed does neither.²

Valuation point. The deed describes a geographic location, minerals "produced from the above described acreage," and production for raw gas occurs at the wellhead, so a royalty in minerals "produced" and nothing more is valued at the well and contrasts with a royalty on "processed" or enhanced minerals or on gross proceeds.³ The Court treated that phrase as functionally equivalent to the at-the-well term in Carl v. Hilcorp.⁴

"Free of cost forever." "Forever" refers to the royalty's duration, not the location of valuation, and cost-free language alone does not change the valuation point or formally relieve the royalty of postproduction costs, even when it refers to specific costs; it merely restates the rule that the royalty is free of production costs, and drafters often use it to stress that an instrument conveys a royalty rather than a mineral interest.⁵ The Court rejected the Puigs' reading as converting a royalty on raw products at the well into a royalty on refined, downstream products, which it could not do by rewriting the deed.⁶

In-kind provision and course of conduct. The deed's alternative of delivery in kind supports the reading, because it would be implausible for the royalty's value to turn on the method of delivery, and the parties' uniform course of conduct, with postproduction costs borne by the Puigs, is consistent with it.⁷

Hyder is distinguishable. In Hyder, a "cost-free" overriding royalty was freed of postproduction costs only because the clause excepted production taxes, a postproduction cost, from the cost-free term, which showed the parties' intent to deviate from the general rule ("no dogs allowed, except for cats"), and the royalty owner there held the right to choose between cash and in-kind delivery.⁸ The Puig deed has no comparable language and no downstream valuation point.⁹

Disposition

Court of appeals' judgment reversed, partial summary judgment rendered for Fasken, and the case remanded to the trial court for further proceedings.¹⁰

Vote Breakdown

Majority Opinion by Justice Bland

Joined by Blacklock, C.J., and Busby, Devine, Hawkins, Huddle, Lehrmann, Sullivan, and Young, JJ.