Post-production deductions on a Texas gas royalty check stub: codes, statutes, and lease clauses
A Texas gas royalty check stub often shows 15% to 35% of gross gas value coming off for gathering, compression, dehydration, treating, processing, and transportation, or hides those costs inside a reduced "netback" sales price. Here is how to audit each line against your lease and Texas Natural Resources Code Sections 91.502 and 91.504.
This is general information from independent landmen, not legal advice. An oil and gas attorney advises on whether a specific deduction breaches your lease.
Under Texas law, a royalty owner never pays the costs of drilling or operating the well (production costs), but whether the royalty owner shares in post-production costs, gathering, compression, dehydration, treating, processing, and transportation after the gas leaves the wellhead, turns on the exact valuation language in the oil and gas lease or royalty deed (see our four-case Texas Supreme Court guide). On the stub itself, Texas Natural Resources Code § 91.502 requires the payor to itemize gross sales volume, price, severance taxes, and any other deductions or adjustments, and § 91.504 gives the royalty owner a statutory right to demand a written explanation of any deduction within 60 days by certified mail.
1Common deduction codes on a gas check stub
Operators use different accounting software packages, so the two- or four-letter deduction codes vary, but almost every post-production charge on a Texas or Louisiana gas stub falls into one of seven categories:
| Stub Code | Charge Category | What happens physically | What to check against the lease |
|---|---|---|---|
| GATH / GTH | Gathering | Low- to mid-pressure flowlines move gas from the wellhead separator to a central gathering point or plant inlet. | Does the lease prohibit gathering deductions, or value gas at the point of delivery into a mainline pipeline? |
| COMP / CMP | Compression | Field compressors raise gas pressure so it can enter high-pressure gathering or interstate transmission lines. | Also check whether plant/compressor fuel gas (FUEL or shrinkage) was deducted in volume before the stub's sales volume line. |
| DEHY / TRT | Dehydration & Treating | Removes water vapor, carbon dioxide (CO₂), and hydrogen sulfide (H₂S) to meet pipeline tariff specifications. | Common in deep Haynesville and Cotton Valley wells with higher CO₂ content. |
| PROC /PLT | Processing | Cryogenic plant strips natural gas liquids (NGLs) out of wet gas, leaving pipeline-quality residue methane. | Applies to rich/wet gas (Eagle Ford, Cotton Valley, Permian). Check whether the plant retains a share of NGLs in addition to a cash fee. |
| TRNS / MKT | Transportation & Marketing | Long-haul pipeline demand and commodity charges from the plant tailgate or central receipt point to downstream hubs. | Check whether affiliated midstream entities are charging above-market rates or firm-transportation reservation fees. |
| SEV / PTX | Severance Tax | State production tax (7.5% standard gas severance tax in Texas under Tax Code § 201.052, subject to high-cost gas rate reductions for qualifying wells). | Almost all leases require the royalty owner to bear their proportionate share of state severance taxes, but verify whether the well qualified for a reduced Texas high-cost gas tax rate. |
3Your statutory right to an explanation (§§ 91.502 & 91.504)
Under Texas Natural Resources Code § 91.502, every check stub or accompanying remittance statement must state the lease/well identification, month and year of sales, total volume sold, price per Mcf or MMBtu, severance taxes, other deductions or adjustments, owner decimal, and gross and net values.
Under § 91.504, if a royalty owner requests information or an explanation of particulars shown on the check stub (including any deduction or adjustment) by certified mail, the payor must respond to the request before the 61st day after the day the payor receives it.
4How a landman compares your stub to your lease
When we review a gas royalty check stub for an owner, we check four concrete things and put the math in writing:
- The lease's valuation clause and Exhibit A addendum: Does your recorded lease value gas on market value at the well (Heritage), price actually received / gross proceeds (Hyder), or an add-back formula (Sheppard)?
- Realized stub price vs. regional hub price: How does the $/Mcf on your stub compare against the same month's regional index (such as Houston Ship Channel, Katy, Carthage, or Henry Hub) after accounting for BTU heat content?
- Volume reconciliation against RRC Form PR: Does the total gross gas volume reported on your stub match the gas sales volume (`Disposition Code 2` or `3`) reported by the operator to the Railroad Commission of Texas for that production month? (See our RRC Form PR guide.)
- Decimal verification: Does your 8-place pay decimal match your Net Mineral Acres divided by the recorded Pooled Unit Designation acreage times your lease royalty fraction?
Ask for a check stub review
Tell us where the interest is and what your stub shows. We read your recorded lease alongside your check stub and Railroad Commission reports, and write back what matches and what does not.
We work as independent landmen. We aren't attorneys and don't give legal opinions; we work alongside your attorney and title company. Nothing here is a substitute for the advice of an attorney.
Rather talk it through?(307) 263-8515 · hello@naturalgas.land