The Independent Petroleum Association (IPAA) has filed a lawsuitagainst the Department of the Interior, claiming that through a newnatural gas royalty regulation DOI’s Minerals Management Service iscollecting a larger share of royalties than it is entitled to.

IPAA filed the lawsuit Monday in the D.C. District Courtchallenging the transportation rule, which went into effect Feb. 1.IPAA Chairman George Yates, president of Harvey E. Yates Co. ofRoswell, NM, said the rule change no longer allows producers todeduct the full cost of transporting gas to the marketplace.”Virtually all marketing costs – for example aggregation, marketingfees, storage and transfer fees – are added into the wellheadprice. That drives up the cost of the gas and means producers endup paying an inflated royalty.”

Yates said the new rule says a producer has a “duty to market”or an obligation to market gas at no cost to the federalgovernment. This “leaves a producer vulnerable because an auditoryears from now can second guess a producer’s decision to sell gasfor one price or another, at the wellhead or further downstream.”

Producers favor a royalty-in-kind method of paying thegovernment for production from federal leases. The government wouldreceive a share of the production, which it could market itselfusing private marketers.

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