The Tyler Court of Appeals has affirmed a San Augustine County district court’s take-nothing judgment on a jury verdict finding that an oil and gas operator did not fail to provide a royalty owner with statutorily required information under the Natural Resources Code (the “check stub” statute fought out in the Legislature in 2011).
Lud R. Davis III and Charlotte Davis v. Aethon Energy Operating LLC, et al. (No. 12-24-00336-CV; February 12, 2026) involved a royalty owner claim against a producer for underpayment of royalties. In 2008 and 2009, the Davises executed mineral leases with Aethon’s predecessor. After it acquired the leases in 2016, Aethon spent a lot of money expanding oil and gas production in San Augustine and Nacogdoches counties, including on the Davises’ leases and paid the Davises millions of dollars of royalties into the bargain. But unlike most of the royalty owners in the area, the Davises’ leases required them to share a portion of the post-production costs to market the gas produced on their property. One such cost was a fee that Scona charged to Aethon for marketing gas, which Aethon passed on to royalty owners whose leases bore-post production costs. For at least the year 2020, each check stub sent to the Davises itemized the fee as a “transportation charge” but identified the expense as “$0.00.” The Davises suspected that Scona and Aethon had retained production profits and hidden their malfeasance “by fabricating the amount of the fee, including it as a reduction in the total sales price, and disguising the actual cost through [Aethon’s] accounting methods.” The Davises sued Aethon in March 2021.
About the same time, Aethon changed their accounting practices by itemizing dollar amounts on each check stub for the transportation fee. It claimed that the change would “better account for its cost-free royalty owners, because during the period in which the charge was embedded within total revenue, it was more difficult to remove the charge for royalty owners who did not bear such charges.” The case went to a jury in March 2024. The jury concluded that Aethon didn’t neglect to provide the Davises with statutorily prescribed information about the deductions for Scona’s transportation charge under § 91.502, Natural Resources Code. The Davises filed a motion for JNOV, but the trial court signed a take-nothing judgment on the verdict. The Davises appealed.
In an opinion by Chief Justice Worthen, the court of appeals affirmed. The Davises argued that insufficient evidence supported the jury verdict with respect to § 91.502, which requires that “[i]f payment is made to a royalty interest owner from the proceeds derived from the same of oil or gas production pursuant to a … lease, …the payor shall include the information required by § 91.502 on the check stub, an attachment to the payment form, or another remittance advice that accompanies the payment.” If the producer does not comply, the royalty owner may make a written request for the information. If the producer doesn’t respond to that within a statutorily prescribed period, the owner may sue the payor to enforce the statute, with recovery of court costs and attorney’s fees.
The Davises contended that Aethon failed to provide the deduction for the transportation charge on their 2020 check stubs. But, as the court pointed out, the statutory language the jury charge “materially differ[ed].” The charge asked the jury “only whether [Aethon] failed to provide the Davises with the information they were entitled to each month” under the statute. The charge thus permitted the jury to find that Aethon didn’t violate its statutory duty if it simply disclosed the required information to the Davises “at some point in time, and not necessarily that the information must be provided on each check stub or remittance advice as required by the statute. Nobody objected to the charge or otherwise raised any issue with it. Consequently, the court had only to consider what the jury could reasonably have concluded based on the charge as submitted. The evidence showed that when contacted by Lud Davis about the transportation charge issue, Aethon’s general counsel responded by email explaining how Aethon handled the charges and why the amount of its royalty payments to the Davises was correct. That email acknowledged that the way Aethon presented the fee “seems to be causing some confusion” but otherwise fully explained that Scona’s marketing charges were passed through to cost-sharing royalty owners as a deduction in total revenue.
Based on the email and other evidence at trial, including Lud Davis’s admission that he had the information necessary to calculate the fee at least two years prior to to trial, the court found that a jury could reasonably conclude that Aethon provided the statutorily required information in accordance with the charge. The court thus affirmed the trial court’s take-nothing judgment.
