Tuesday, June 23, 2015

House Legislation Revived To Protect Natural Gas Royalty Owners

In another effort to protect owners of natural gas royalty leases, Reps. Garth Everett (R-Lycoming), Sandra Major (R-Susquehanna), Matt Baker (R-Tioga), Tina Pickett (R-Susquehanna) and Karen Boback (R-Luzerne) Tuesday said legislation-- House Bill 1391-- is being reintroduced to guard natural gas royalty owners from unjustified post-production cost deductions.
At a Harrisburg press conference, legislators were joined by Trevor Walczak, vice president, National Association of Royalty Owners Pennsylvania Chapter, and Betsy Huber, government relations director, Pennsylvania State Grange.
“We fought for this legislation in the previous session in the form of House Bill 1684 and did not get a full floor vote,” said Rep. Everett. “We were able to get bipartisan support from the House Environmental Resources and Energy Committee last session and hope to get that again, but we will also press very hard for the full House to consider it. I believe it is imperative that we gain fairness for conventional and Marcellus natural gas land owners and operators.”
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 what are known as 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.
In 2010, the PA Supreme Court considered this issue in Kilmer v. Elexco Land Services Inc., it determined that the current statute did not address the deduction of post-production costs and stated that the “General Assembly is the branch of government best suited to weigh the public policies underlying the determination of the proper point of royalty valuation.”
“This is an important issue to landowners across the northeast region of the state and it continues to be a top priority for me and my Northern Tier colleagues as we work to ensure landowners receive fair and equitable payments for natural gas reserves under their land,” said Major. “It is our hope that we can get this bill through the General Assembly in a timely manner and onto the desk of the governor.”
Rep. Boback said there are many ramifications beyond just the property owners.
“This shortchanging of property owners in Pennsylvania adds up to the loss of millions of dollars each year,” Rep. Boback said.  “Beyond property owners, it affects school districts, townships and other municipalities.  It is time for action to make sure property owners are being paid fair royalties.”
When Pennsylvania landowners signed leases for a percentage of the value of the gas produced from their property, they were assured by the gas companies that they would receive no less than the statutory one-eighth – not something significantly less than that because of deductions.
“This is the second session in which we have joined together to urge passage of legislation to uphold the good-faith contracts signed by landowners with respect to royalties owed them by natural gas companies,” said Rep. Baker. “Landowners need to have a guaranteed minimum royalty law to ensure that they receive fair payment under the law.”
Rep. Pickett said this is the job of the Legislature, not the courts.
“The 1979 law guaranteeing a minimum royalty payment has led to varying interpretations, with some landowners getting far less than specified in their leases and others receiving royalty statements with figures in the red,” Pickett said. “The state court has ruled that the Legislature should be the branch of government clarifying existing state law in an effort to achieve royalty fairness and equity, and our legislation seeks to do just that.”
The legislation awaits a committee assignment.  A sponsor summary is available.

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