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Deduction of Post-Production Expenses from Royalty Payments in Ohio

A federal court recently addressed two contentious issues affecting calculation of royalty payments from production of shale gas in Ohio: (1) whether operators may deduct post-production expenses (costs for gathering, compression, treatment, processing, transportation, and dehydration) when calculating royalty payments; and (2) whether operators are required to pay royalties on all gas extracted at the wellhead – including gas that is lost between the wellhead and the point of sale (i.e. “line loss” gas).  Lutz v. Chesapeake Appalachia, L.L.C, No. 4:09-cv-2256, Dkt. 142 (N.D. Ohio, Oct. 25, 2017) (Judge Sara Lioi).

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