Market Enhancement Case Nixes Most PA Post-Production Deductions

A court case decided in late April in Pennsylvania Superior Court appears (to us) to have significant ramifications for landowners and drillers with respect to deducting post-production expenses. The case is Dressler Family, LP v. PennEnergy Resources, LLC (copy of the decision below), and it addresses "market enhancement" royalty clauses found in many PA leases. Market enhancement clauses typically prohibit the deduction of post-production costs that are incurred when transforming gas into a marketable form. Some drillers ignore such clauses and deduct all “post-production costs” from the landowner’s royalty based on the drillers’ incorrect assumption that gas is “marketable” at the wellhead. This case and decision helped clear up definitions of what is and is not marketable gas.

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