Energy. Environment. Economy.

House panel approves bill to limit gas royalty deductions

Diana and Terry Van Curen are landowners in Bradford County who say they've been cheated out of royalty money.

Marie Cusick/ StateImpact Pennsylvania

Diana and Terry Van Curen are landowners in Bradford County who say they've been cheated out of royalty money.

The state House Environmental Resources and Energy Committee has approved a bill aimed at preventing gas companies from shortchanging landowners on royalty money.

The committee voted to send HB 1684 to the full House for consideration. The bill is an effort to clarify the state’s Guaranteed Minimum Royalty Act of 1979, which states an oil and gas lease is not valid unless a landowner receives a one-eighth (12.5 percent) royalty.

The legislation was proposed in the wake of allegations some gas companies are cheating landowners by withholding large amounts of money and paying less than the legal minimum.

Representative Garth Everett (R-Lycoming) is the prime sponsor of the bill and says he’s been fighting an uphill battle against the gas industry.

“They want to make as much money as they can– I get that,” he says. “But they need to pay our landowners their fair share. It’s the landowner’s gas.”

The measure would limit a driller’s ability to charge landowners for the costs of processing and transporting natural gas. These fees– known as post-production costs– would still be permitted, but in keeping with the 1979 law, the lease would not be valid if the resulting royalty is less than 12.5 percent.

The committee approved an amendment sponsored by Representative Carl Metzgar (R- Bedford), which addresses how a royalty should be calculated for unconventional gas wells. The bill seeks keep drillers from skimming royalty money through self-dealing and selling gas to affiliated companies.

The measure states that gas companies should calculate royalties based on the price they receive when gas enters the commercial market and changes hands to an unaffiliated business. However if a driller sells gas to an affiliated company, it will be the driller’s burden to prove to a landowner that his or her royalty is based on the fair market value of the gas.

In a recent memo, Jim Welty of the Marcellus Shale Coalition, urged committee members to oppose the bill–arguing it would be unconstitutional because it alters terms of existing contracts.

“There is nothing improper about post-production costs that warrant government intervention in the contract negotiations of private parties,” he wrote.

The bill would apply to all existing and future leases, but it would not allow for retroactive recalculation or repayment of past royalties.

Dave DeCristo is a Bradford County landowner who attended the committee meeting and is pushing legislators to support the bill.

“We need to get this resolved– not just for the landowners–but for all Pennsylvanians,” he says. “Every dollar landowners receive in royalties means we’re going to pay our taxes and we’ll be able spend it in Pennsylvania. It’s a huge amount of money leaving the state.”

The bill may come up for a floor vote in the House as early as Wednesday.



  • Fracked

    Elected officials should have dealt with this in early 2008. They were approached by citizens who realized they had been…shall we say misinformed and uninformed. Could be upcoming elections have started a fire under the current officials. Not retroactive? That leaves a lot of money on the gas industry’s side of the rig. Folks were told it was only fair that they pay their share of costs…I always felt if it were a dime under the 12.5 then it broke the law and was told it was sour grapes to complain… considering there was a lot more gas than laws in the first wave of leasing and drilling out here in Deadwood, I guess we can be grateful something will be done for the people who live in the gasfields….

  • NorthernTier

    Where is the protection from excessive post-production deductions for landowners who negotiated leases for greater than 12.5% royalty?

    How would this legislation effect the “Taxes” clause common in leases, in which the parties to the lease pay a proportional share? (HB1684 does cover severance taxes as well as post-production costs.)

    Also, the “Successors and Assigns” clause, by which the lessee may pay lessor’s outstanding taxes, mortgages, and other obligations, then “reimburse itself by applying any royalty or rental …”

    And, perhaps most important, where is the provision for enforcement – other than privately by landowners, through the court system?

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