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Court Strikes Down Royalty Valuation Provision
A federal district court has struck down a controversial part ofthe Interior Department’s 1997 royalty valuation rule under whichroyalties were calculated on the market price of the gas even if itwas a delivered price downstream from the lease, the IndependentPetroleum Association of America said yesterday.
IPAA and the American Petroleum Institute had challenged therule in cases brought in 1998. They said the it improperly deniedproducers the right to deduct all the costs they incur in movinggas from federal leases downstream from the sales price theyreceive. “The court ruled that if the government wants to share inthe benefits of those activities by the producers, the governmentmust accept its share of the costs,” said Ben Dillon, IPAA vicepresident Public Resources. The court said the producers’ marketingactivities added value to the product.
“This is a great victory for independent producers and for allconsumers of natural gas,” Barry Russell, IPAA president, said. “Itblocks the government from imposing on producers and consumers anartificial tax on the transportation of gas between the wellheadand the burner tip.”
The court ruling has implications for another rule issued by theInterior Department earlier this month. “Both rules are based onthe view that the government should receive a free ride on thebacks of producers when they move oil and gas closer to marketbefore selling it,” said Poe Leggette, with Fulbright &Jaworski, who represented IPAA in the lawsuit. “Both rules arebased on an implied duty to market. The court held that duty doesnot exist.”
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