Royalty Litigation Over Post-Production Costs Continues Post-'Kilmer'
One of the key issues faced by courts in mineral-producing states is whether a lessor (the owner of the oil and gas property interest) should bear its proportionate share of post-production costs, including costs to gather, market, treat, separate and transport gas to market, as part of the royalty.
September 08, 2015 at 05:54 AM
6 minute read
The original version of this story was published on The Legal Intelligencer
One of the key issues faced by courts in mineral-producing states is whether a lessor (the owner of the oil and gas property interest) should bear its proportionate share of post-production costs, including costs to gather, market, treat, separate and transport gas to market, as part of the royalty.
Although it has long been settled that a lessor does not bear costs of production, courts have reached divergent results as to whether costs associated with preparing and transporting the gas to market after production can be deducted from a lessor's royalty payment.
In 2010, the Pennsylvania Supreme Court issued its landmark decision in Kilmer v. Elexco Land Services, 990 A.2d 1147 (Pa. 2010), holding that a producer may deduct post-production costs in calculation of the minimum royalty required by the Pennsylvania Guaranteed Minimum Royalty Act.
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