Post-Production Costs
Costs incurred after hydrocarbons reach the surface — gathering, compression, dehydration, processing and transportation — which some leases allow to be deducted before royalty is calculated.
Why it matters when you sell
Deductions reduce the income a buyer is underwriting, so they reduce the offer. They matter far more on gas than on oil, because gas needs considerable handling before it can be sold. Two interests with identical gross production can support very different bids purely because of what their leases permit.
Example
A gas well grosses $93,000 in a month and the operator deducts $22,900 for gathering, compression and processing. A one-eighth royalty owner whose lease permits those deductions receives about $8,762. An owner whose lease bars them receives $11,625 on the same gas. Capitalised over the remaining life of the well, that monthly difference is a substantial change in sale value.
How this varies across the states we serve
Across our launch states the answer comes from the lease rather than from a single statewide rule, which makes the specific wording unusually important. Gas-weighted positions in the Haynesville and in parts of Oklahoma and Wyoming feel this most; oil-weighted Permian and Bakken interests are affected less, because oil moves to sale with far less handling.
What to have in hand
Compare the gross and net volumes on a recent cheque stub. If they differ, ask the operator for a breakdown by category — that itemisation is usually available on request and tells you exactly what a buyer will see.
Related terms
Wondering what your interest is worth?
A free consultation looks at your actual wells and lease terms — 6% at closing, cancel anytime, 100% seller-side.
Get a Free Consultation