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Jennifer Thompson of Reed Smith. Jennifer Thompson of Reed Smith.

The majority rule in oil and gas producing jurisdictions is the “at-the-well” rule, pursuant to which an oil and gas producer applies the net back method to determine the value of gas at the well for royalty calculation purposes, where the gas is sold downstream of the well. The net back method starts with the value of the gas at the downstream sales point, and nets out the costs incurred between the wellhead and the point of sale, to arrive at a value of the gas at the well. Pennsylvania, along with states including Kentucky, Texas, Michigan, North Dakota and now, Ohio, follow the “at-the-well” rule. Pennsylvania first adopted the “at-the-well” rule in 2010 in Kilmer v. Elexco Land Services, 990 A.2d 1147 (Pa. 2010).

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