House Bill 1684 (Everett-R-Lycoming) which seeks to clarify a minimum royalty payment in state law was reported out of the House Environmental Resources and Energy Committee Monday, said bill’s sponsors, Reps. Garth Everett (R-Lycoming), Tina Pickett (R-Bradford), Matt Baker (R-Tioga) and Sandra Major (R-Susquehanna).
The measure, which was the subject of hours of discussion during two committee meetings, will now advance to the full House for its consideration.
The legislation addresses concerns by landowners that their royalty payments have decreased due to post-production costs. As has been reported, some energy companies attempted to reduce or succeeded in reducing royalties below the statutory minimum by transferring post-production costs to royalty owners.
These are costs that are incurred between the wellhead and a final market point of sale and typically include dehydration and transportation. When these expenses are deducted, final payments often result in royalty shares of less than one-eighth, which is equivalent to about 12.5 percent.
“I am pleased that we got the bill moved out of committee and now hope to get it to the House floor for a full debate and vote,” Rep. Everett said. “The committee and amendment process made this a better, more focused bill. The challenge now to those of us who are sponsors of the bill is to gather enough support from members so that the majority leader will bring it to a vote. As I said in the committee meeting a number of times, in my mind this is simply a matter of fairness to the lease holders in my district and in other parts of the Commonwealth as well.”
Although a 1979 state law guaranteed a minimum royalty to landowners of one-eighth, or 12.5 percent, language was not clear for unconventional wells, namely those in the Marcellus Shale. In addition, the law did not specify terms such as “post-production costs.” As a result, the state Supreme Court determined that the General Assembly needed to define those terms in order to clarify the law for the drilling activity that is currently taking place.
“Today’s committee action is a positive step for our local landowners who have been directly impacted by the deduction of these costs,” Rep. Pickett said. “Our goal with this entire legislation has been to ensure greater fairness in state law, so that companies cannot use state law to their advantage and against those who own the land where this drilling is taking place.”
The legislation also includes an amendment that was successfully inserted into the bill to more clearly define post-production costs and to specify that the proposal would apply to both existing and future leases.
“I’m pleased to see this legislation move forward to the full House for a vote,” said Rep. Baker. “I think we have a good, solid piece of legislation that will help better ensure fairness for our landowners. We will continue to advocate for advancement of the legislation through the legislative process.”
“Minimum royalty payment amounts has become an overriding issue for many landowners in the Northern Tier,” said Rep. Major. “My colleagues and I from the region have been diligently working on and advocating for greater clarification for some time now, and it is gratifying to have the bill garner committee support and move on to the full House for consideration. It is my hope the legislation gains both House and Senate support and is signed into law by the governor in the very near future.”
House Bill 1684 could come up for a House vote on second consideration, where additional amendments could be considered, by the end of this week.