The U.S. District Court for the Northern District of Ohio recently certified an important question of law concerning the deduction of post-production costs to the Supreme Court of Ohio:
Does Ohio follow the “at the well” rule (which permits the deduction of post-production costs) or does it follow some version of the “marketable product” rule (which limits the deduction of post-production costs under certain circumstances)?
See Lutz v. Chesapeake Appalachia, L.L.C., N.D. Ohio No. 4:09-cv-02256. Post-production costs are incurred generally in preparing gas for and in some cases transporting gas to market, and can include such things as compression, dehydration and the extraction of natural gas liquids. Whether these costs can be deducted can have a direct effect on the amount of royalties due to lessors.
Learn more about this case in our Client Alert.
Update: On June 3d, 2015, the Supreme Court accepted this case for review.