ONRR Plans Aggressive Enforcement of "Marketable Condition" Rule


New ONRR initiative sets presumptive costs of making gas marketable and will require lessees to affirmatively demonstrate costs that differ from ONRR assumptions.

The Department of Interior, Office of Natural Resources Revenue (ONRR), is responsible for collecting royalties on gas produced from Federal and Indian lands. In calculating the value of the production on which royalties are assessed, ONRR allows lessees producing gas from Federal and Indian lands (Lessees) to deduct the cost of processing or transporting gas from the value of production, but does not allow Lessees to deduct the cost of placing residue gas and plant products in marketable condition. Until now, Lessees have differentiated between the costs of processing and transporting gas from the costs of making gas or residue gas and plant products marketable (Marketable Condition Costs) on their own. In a new enforcement initiative, ONRR is now promulgating its own calculations for how to “unbundle” these costs, including a much broader and more aggressive definition of the relevant Marketable Condition Costs. ONRR’s enforcement initiative may sharply reduce the amount of fees and expenses that were previously deductible as processing or transportation allowances by reclassifying certain costs as Marketable Condition Costs. In light of ONRR’s new enforcement initiative, Lessees must affirmatively take steps to ensure that they are not required to pay unwarranted additional royalties.

Please see full White Paper below for more information.

LOADING PDF: If there are any problems, click here to download the file.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Latham & Watkins LLP | Attorney Advertising

Written by:


Latham & Watkins LLP on:

Popular Topics
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.