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Royalty is commonly defined as the landowner's share of production, free of expenses of production. Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121--22 (Tex. 1996). Although it is not subjected to the costs of production, royalty is usually subjected to postproduction costs, including taxes, treatment costs to render the hydrocarbons marketable, and transportation costs. Id. at 122. However, the parties may modify the general rule by agreement. Id....

It is commonly understood that a royalty is a share of production that is free from the expenses of production. Heritage, 939 S.W.2d at 121--22. This concept is exemplified in the quoted portion of the unitization agreement above. Whereas the amount of the royalty may not be reduced by production costs, postproduction costs are typically deducted prior to calculating royalty. Id. at 122. Postproduction costs include taxes, treatment costs to render the hydrocarbons marketable, and transportation costs. Id.

Occidental Permian v. French, (Tex. App. - Eastland, 2012).