Post-Production Costs
Gathering, compression, processing, and transportation deductions taken between the wellhead and the sale point that reduce a net royalty check.
Post-production costs are the expenses of moving and conditioning oil and gas after it leaves the wellhead but before it is sold — gathering, compression, dehydration, processing, treating, and transportation. When a lease allows them, the operator deducts a proportionate share from the gross value before calculating royalty, which is why the price on your royalty statement can be lower than the headline market price.
Whether these costs can be charged turns on the lease's valuation language. An "at the wellhead" clause generally lets the operator deduct downstream costs, while "amount realized," "gross proceeds," or an express cost-free royalty clause limits or bars them. Courts in different states read these phrases differently, so the exact wording controls.
For royalty owners, deductions can quietly erode a check, especially on gas. Knowing your net revenue interest and your lease terms is the defense. See how royalties work; lease interpretation is best reviewed with an oil and gas attorney.