Energy. Environment. Economy.

Marcellus leases allow for impact fee deductions, despite law forbidding it

Oil and gas lease

Marie Cusick/StateImpact Pennsylvania

Pennsylvania’s oil and gas law prohibits companies from shifting the burden of paying impact fees to property owners who have leased their land for drilling.

According to the Pittsburgh Post-Gazette, some companies, including Chesapeake Energy and Chevron, have put language in their leases to allow for the deductions anyway.

In Chesapeake’s leases, the company “wanted landowners to agree that Pennsylvania impact fees would be deducted from their royalty payments in proportion to their interest. So if landowners agreed to a 15 percent royalty, they’d be responsible for 15 percent of the impact fee,” the newspaper reported today.

Act 13 spells out its intent bluntly.

“A producer may not make the fee … an obligation, indebtedness or liability of a landowner, leaseholder or other person in possession of real property, upon which the removal or extraction occurs,” the law states.

The legislation goes on to say that if such a provision is included in a lease, that part of the document “shall be null and void.” That’s true for leases signed before and after Act 13 took effect, the law states.

A Chesapeake Energy spokesman said the company declined to comment on the matter.

It won’t be clear if the companies are actually deducting impact fees on the leases that allow it until wells on the properties start producing gas and royalties. The Associated Press quotes a Chesapeake spokesman saying the company has not deducted impact fees from Pennsylvania royalties:

Chesapeake spokesman Gordon Pennoyer said the company hadn’t done so and believes it is in full compliance with state law.

A spokesman for the Marcellus Shale Coalition, an industry group, said Act 13′s prohibition on deducting impact fees from royalties supersedes any lease language that would allow for such deductions. Steve Townsend, an attorney quoted by the Post-Gazette, had a different reading of the law:

“[If] I’m a landowner, I’m allowed to negotiate whatever I want in my lease,” he said. “[Companies] bury it in the end of the piece. If the landowner agrees, it’s legal.”

Chesapeake’s practice of claiming expenses against royalties has raised complaints from landowners and resulted in a $7.5 million class action settlement in August.

Although state law sets the minimum royalty paid on gas production at 12.5 percent, a state Supreme Court decision in 2010 allowed companies to deduct the costs of moving the gas to market even if that means a landowner receives less than the minimum royalty.

State lawmakers have recently introduced bills to try to limit the amount companies can deduct for these post-production costs.

This post has been updated to include comments from the Marcellus Shale Coalition and reporting from the Associated Press.





  • darlnewton

    So let me get this right Mr. Govoner and Mr Yaw!

    What is the difference between the Law for your Act 13 was
    to not allow the gas companies to not take these deductions out of
    landowners? They are taking these
    deductions and taking them out of checks ! Because YOU screwed UP, YET again!!!!!!!!!!!!!!!!!

    Now the Law was written to protect Landowners and to be read
    that 12.5 percent was theirs!!!!!!!!!!!!!!!!!!!!That was the agreement made
    Verbally and Contractually UNTIL YOU ALLOWED the Gas Companies to DEFINE their
    OWN meanings?

    I remember talking to Tina Pickett when Chesapeake stated
    taking all these deductions and she assured me they could not deduct that!

    “Again screwed by our Lawmakers! “ Then YOU”ALL” allowed
    them to take these ridiculous charges to eat away at our Royalty Checks !

    PLEASE Govoner Corbett and Mr. Yaw Please tell me what the
    difference is? Are you going to get our money back for one
    and not the other because they sure seem similar? WE want answers and YOU refuse to answer
    them! YOU want Landowners to flip the
    bill, HOW WRONG IS THAT?

    Why do I keep hearing YOU are going to allow the Gas
    Companies to NOT pay the Landowners back
    what they VERBALLY AND IN WRITING agreed to?
    “WE WANT QOR MONEY BACK” or get them OFF or UNDER my land until they
    hold up the agreement , THEY are in BREECH of Landowners contracts!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
    Verbal Agreements are just as legal and when Chesapeake told Bradford County
    Landowners 12.5 percent was our NO deductions would be made and that there was
    NO need for a lawyer to look these agreements

    Darlene M Newton

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