Bill to clarify royalty minimums introduced in the state house

Legislation that seeks to protect the interests of landowners with royalty agreements has been introduced in the state House, according to four members of the Pennsylvania House of Representatives who are spearheading the measure.

House Bill 1684, sponsored by Reps. Garth Everett (R-Lycoming), Matt Baker (R-Bradford/Tioga), Tina Pickett (R-Bradford/Sullivan/Susquehanna) and Sandra Major (R-Susquehanna/Wayne/Wyoming), seeks to clarify state law regarding the minimum royalty payment for landowners so that the deduction of post-production costs from unconventional wells may not result in royalty payments less than the guaranteed minimum.

“My colleagues and I have heard from hundreds of lease holders here in the Marcellus Shale area whose royalty payments are below the guaranteed state minimum – all because of post-production costs,” Everett said. “Our issue with this is that these landowners were never given notice from the gas companies about how these post-production costs were to be deducted, and to us, that is not operating in good faith. We want residents to be treated fairly, and that is the intent behind our legislation.”

According to a 1979 state law, a minimum royalty payment of one-eighth for oil, natural gas, or gas of any other designation was guaranteed, helping to ensure fairness and protect landowners from deceptive leases.

“This legislation is all about protecting the rights of consumers, ensuring they have all the facts and guaranteeing royalties that are rightfully theirs,” Pickett said. “The minimum royalty of 12.5 percent should be upheld by law as just that – the minimum. All costs charged back to the landowner beyond the amount guaranteed in state law should be fully clarified so that everyone is apprised of all costs.”

In the past few months, some natural gas companies have attempted to reduce 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.

“This is an issue that was brought to our attention some time ago by landowners who noticed a discrepancy in their payments,” said Baker. “Those of us in the northern tier joined together to draft this measure and rally support for this legislation.”

“Landowners simply want to be treated fairly and receive the amount of payment they were promised when they entered into their agreement with the natural gas companies,” said Major. “This measure will ensure Pennsylvania landowners are protected from these types of unfair practices.”

The legislation, which has bipartisan support from nearly two dozen lawmakers, has been referred to the House Environmental Resources and Energy Committee for study and consideration.