House Committee Held Information Meeting On Natural Gas Royalty Legislation

The House Environmental Resources and Energy Committee Tuesday conducted an informational meeting on House Bill 1391 (Everett-R-Lycoming) that would protect natural gas royalty owners from unjustified post-production cost deductions.

House Bill 1391 is also co-sponsored by Reps. Sandra Major (R-Susquehanna), Matt Baker (R-Bradford), Tina Pickett (R-Bradford) and Karen Boback (R-Lackawanna).

"This meeting is another step in what continues to be a long, ongoing process to protect landowners from being cheated by the natural gas drilling companies when it comes to royalty funds they have rightly earned," said Rep. Everett. "I am pleased that the committee heard from a number of interested parties on this issue and I am hopeful this will break the logjam and help move this badly needed legislation."

Rep. Everett said the Guaranteed Minimum Royalty Act (Act 60 of 1979) simply states that a lease for oil or natural gas shall guarantee a minimum one-eighth (12.5 percent) royalty.

The development of unconventional shale gas wells (i.e. Marcellus) in the Commonwealth has been accompanied by an effort of some companies to reduce royalties below this statutory minimum by deducting post-production costs from the royalty payments to landowners.

These post-production costs can include compression, dehydration, transmission and other costs incurred between the wellhead and a final market point of sale. When these expenses are deducted, final royalty payments often are below the statutory one-eighth.

"This is clearly an issue of fairness, period," said Rep. Everett.

This is the second consecutive legislative session in which this legislation has been offered. Rep. Everett said he has held talks with all interested stakeholders to satisfy their concerns.

Rep. Major, who attended the hearing, said this effort has taken a great deal of time.

"We have been working on this issue for the past few years, and I am hopeful we can finally get this bill through the legislative process and signed into law so landowners across the northeast region are ensured to receive fair and equitable payments for natural gas reserves under their land," said Rep. Major.

The legal process on this issue includes a critical ruling made in 2010 that has had a major impact on the landowners. Rep. Pickett, who also attended the meeting, said that ruling changed the way in which royalties were calculated and that new legislation is vital for the region and for all leaseholders.

"Before any more time passes, it's imperative that we enact these very basic consumer protections," Rep. Pickett said. "When many of these leases in our area were signed, the 1979 royalty law was standard practice. It was only after further shale development and a Supreme Court ruling in 2010 that allowed drillers to consider in calculating royalties the cost of moving the gas from the wellhead to the marketplace – thereby known as post-production costs. I appreciate all the landowners coming forward and sharing their experiences today, and I am hopeful that this legislation moves forward so that when the natural gas market bounces back, our residents will be protected."

Rep. Baker said this is a matter of the drilling companies living up the promises made in legal contracts.

"This is important legislation that, once signed into law, will require natural gas companies to uphold the good-faith contracts signed by landowners with respect to royalties owed them by the companies," said Rep. Baker. "Landowners need to have a guaranteed minimum royalty law to ensure they receive fair payment and are not undercut by any unscrupulous practices."

Testimony was taken from Jackie Root, president of the National Association of Royalty Owners (Pennsylvania chapter); royalty owners David DeCristo and Robert Sher; James Soto, senior vice president and chief risk and administrative officer of PS Bank of Wyalusing; Daniel A. Devin, state forester, Department of Conservation and Natural Resources; Michael DiMatteo, chief environmental planning and habitat protection division, Game Commission; and Jessica Brisendine, litigation manager, EQT, a natural gas and petroleum pipeline company based in Pittsburgh.

Rep. Boback said she is pleased that forward progress is being made on this long-standing issue.

"I am encouraged by the progress made on the important issue of protecting natural gas royalty owners. It is critical that we continue to advocate for landowners and ensure they are treated fairly by natural gas drilling companies," she said.

Rep. Everett called the meeting a success.

"Now that the Committee members have had an opportunity to learn about this issue and my bill, it is my hope that we can get it voted out of committee and to the floor for a vote, said Rep. Everett.

A two-bill package on oil and gas royalties sponsored by Sen. Gene Yaw (R-Lycoming) has been in the House Environmental Committee since February of 2015-- Senate Bill 147 and Senate Bill 148 (sponsor summary).

Copies of written testimony are available online--

-- Jackie Root, National Association of Royalty Owners

-- David DeCristo, royalty owner

-- Robert Sher, royalty owner

-- James Souto, National Association of Royalty Owners

-- Daniel Devlin, State Forester, DCNR

-- Michael DiMatteo, Game Commission

-- Jessica Brisendine, EQT

Rep. John Maher (R-Allegheny) serves as Majority Chair of the House Environmental Committee and can be contacted by sending email to: jmaher@pahousegop.com.  Rep. Greg Vitali (D-Delaware) serves as Minority Chair and can be contacted by sending email to: gvitali@pahouse.net.
NewsClips:

Gas Royalties Bill Back In The Spotlight

Bill Would Prohibit Drilling Companies From Taking Royalty Deductions