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Pennsylvania Court Holds That Natural Gas Producer Improperly Deducted Fees

Post-production costs deducted from gas royalties, such as interstate transportation charges and marketing costs, must be incurred while a producer still holds title to the gas.

On June 18, the US District Court for the Western District ofPennsylvania confirmed that Energy Corporation of America (ECA), a natural gas producer, was liable to a class of landowners for deducting certain post-production costs—interstate pipeline transportation charges and marketing costs—from their royalties. The court distinguished that ECA incurred these post-production costs after title to the natural gas had transferred from ECA to third-party purchasers. Deduction of those expenses from the landowners’ royalties therefore was improper, even though ECA in fact incurred those costs.[1]

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