When is natural gas considered to be in “marketable condition” for royalty payment purposes?

The “Marketable Condition Rule” used in oil and gas royalty valuation has been adopted in a growing minority of states, including Oklahoma. It is often viewed as an extension of the lessee’s “implied covenant to market” and states that production is not complete until the lessee has not only captured the production at the wellhead, but also has placed it in marketable condition. Any costs incurred to make the production marketable are not deductible from royalty.