Wed, May 1, 2019
2:00 PM – 6:30 PM
111 N Post Oak Lane
Houston, TX 77024
The Independent Petroleum Association of America (IPAA) and BakerHostetler have partnered to present a program regarding the ruling in Continental Resources, Inc. v. Jewell, et al. Please join us on May 1, 2019, for a two-hour live discussion regarding this important issue. A cocktail reception will follow.
Ever since 2003, when a federal appeals court ruled that the Interior Department could not treat an affiliate as the “lessee” under federal natural gas royalty rules, it has been clear that the rules governing royalties on gas sold after processing cannot rationally be applied to sales of gas before the gas is processed. Yet treating unprocessed gas as if it were processed is an easy way for federal auditors to inflate royalty values at the lessee’s expense. So the Department has continued to try to fit the round peg of unprocessed gas into the square hole of the processed gas royalty rule. Until now.
A federal district court in Washington, D.C., has reversed the Department of the Interior for arbitrary and erroneous application of its “processed gas” royalty rules to wellhead sales of unprocessed gas. In Continental Resources, Inc. v. Jewell, et al., Case No. 1:14-cv-00065-RDM [Dkt. 77], 2019 WL 1440111 (D.D.C.) (order dated March 30, 2019), the court reviewed Interior’s decision to value allegedly non-arm’s-length sales of unprocessed gas at the wellhead by comparing it to the first buyer’s sales of processed liquids and residue gas downstream. Finding Interior’s actions arbitrary and plainly inconsistent with regulation, the court reversed the decision and remanded the case.
What happens next? Will Interior re-interpret its current rules to value sales of gas before processing under the benchmarks for unprocessed gas? Will it revise its unprocessed gas rules to address the court’s concerns? Will it propose to re-enact the Obama Administration’s rule treating affiliates as if they were lessees? Whatever the result, the court’s ruling is likely to lead to a revolution in the Department’s treatment of sales of unprocessed gas. What can lessees do to ensure the results are rational, workable, and fair?
2.0 hours CLE credit have been approved for the live program in Texas.