The court then addressed DCOR’s assertion that the longstanding interpretation of the regulations supports that transportation begins at offshore platforms. Citing a preamble to a prior version of the regulations, the court observed that when approval has been granted for the removal of production from a lease or unit for the purposes of treatment or accumulation, no allowances should be granted for costs incurred by a lessee in these instances. 15 Thus, the ONRR reasonably concluded that the prior regulations foreclosed transportation allowances prior to production reaching the royalty measurement point. 16 The DCOR decision highlights that under the CFR, transportation allowances are not applicable to gathering activities. The general rule is that transportation allowances may not be deducted upstream from the royalty measurement point. DCOR also serves as a reminder that: (i) courts give a high level of deference to administrative decisions unless they are arbitrary or capricious (a high threshold of reverence); and (ii) seeking the ONRR’s guidance on transportation allowances may be a helpful exercise, [15] See 53 Fed. Reg. 1184-01, 1193 & 1230-01, 1240 (Jan. 15, 1988). [16] 2023 U.S. Dist. LEXIS 127814 at 14.
but may also prompt an unwelcome audit!
C ontact
Brad Gibbs Partner, Houston bgibbs@oglawyers.com www.oglawyers.com
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Self v. BPX Operating Co. Post-Production Costs in LA
Depending on the state, post-production costs are either deducted “at the wellhead” or when the product has been placed in “marketable condition.” In Louisiana, the minerals are not owned by the landowner, but that person does have the right to explore for minerals, which can be leased. Because of this, the ownership of minerals does not occur until they are reduced to possession, which occurs “at the wellhead.” Thus, Louisiana determines royalties “at the well” rather than when they reach a “marketable condition.”
In the recent case of Self v. BPX Operating Co , 1 the United States Fifth Circuit Court of Appeals certified a question for the Louisiana Supreme Court to address whether La. Civ. Code art. 2292 applies to unit operators selling production in accordance with La. R.S. 30:10(A)(3). 2 The facts, in this case, include the plaintiffs, the Selfs, who filed [1] 2023 U.S. App. LEXIS 23969. This case was consolidated for oral argument with Johnson v. Chesapeake Louisiana , No. 22- 30302. [2] Id . at 8.
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N at i onal A ssociation of D i v i s i on O rder A nalys t s
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