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Gas royalties bill remains controversial in Harrisburg

Harrisburg Capitol

David Flores/ via Flickr

At the same time thousands of Marcellus Shale supporters were rallying on the steps of the state Capitol, House lawmakers were inside debating a thorny issue– how to ensure Pennsylvania landowners are being fairly paid for their natural gas.
House Bill 1684 was the subject of a floor debate Tuesday, but there was no vote taken. The measure aims to limit a driller’s ability to withhold royalty money from landowners. It faces staunch opposition from the oil and gas industry.
“We are closely monitoring this process and will continue work to ensure that polices being considered do not unnecessarily impact Pennsylvania’s competitiveness,” Marcellus Shale Coalition spokesman Travis Windle wrote in an email.
Pushing for a precedent
Over the past year complaints against the state’s biggest natural gas driller– Chesapeake Energy– have been growing. The Oklahoma City-based company is currently at the center of a class action lawsuit over royalties in Pennsylvania and an investigation by the state Attorney General’s office.
At issue is a 1979 state law known as the Guaranteed Minimum Royalty Act. It states that an oil and gas lease is not valid unless a landowner receives at least a 12.5 royalty.
“Part of the reason this is such a difficult fight is because what we’re pushing for is going to set a precedent that 12.5 percent is 12.5 percent,” says Trevor Walczak of the Pennsylvania Chapter of the National Association of Royalty Owners, a group which advocates for landowners. “Everybody wants to see [the bill] moving. We’re encouraged by the debate.”

Landowners have complained that Chesapeake Energy, in particular, is cheating them by withholding large amounts from royalty checks–charging them fees for processing and transporting gas. The fees are known as post-production costs.
Chesapeake has repeatedly declined to comment on the controversy.
House Bill 1684 would limit drillers’ ability to charge landowners for post-production costs. It doesn’t prohibit the practice entirely, but in keeping with the existing 1979 law, a lease would not be valid if the resulting royalty is less than 12.5 percent.
The measure was approved by a House committee in March. It would require gas companies to calculate royalties based on the price they receive when gas enters the commercial market and changes hands to an unaffiliated business.
If a driller sells gas to an affiliated company, it will be the company’s burden to prove to a landowner that his or her royalty is based on the fair market value of the gas.
Rep. Tina Pickett (R- Bradford) co-sponsors the bill.
“The exorbitant amounts being deducted [from royalty payments] are not right. Something has to be done,” she says. “I think enough people in the legislature would like to see an adjustment that is fair for landowners.”
“That one company”
In an interview last week with StateImpact Pennsylvania, Governor Corbett said the issue is not endemic to the industry, rather Chesapeake Energy is the main problem. In February, he asked state Attorney General Kathleen Kane to investigate its business practices.
“The complaints I have received are– if not 100 percent–99 percent about that one company,” he says. “I think you need to deal with that one company.”
Corbett added he’s supportive of a package of leaseholder protection bills sponsored by state Sen. Gene Yaw (R- Bradford), which among other things, prevent companies from retaliating against landowners who question their royalty payments.
Corbett declined to comment on HB 1684.
“I haven’t looked at [the bill] for a while,” he said. “I’d have to really go back and look at it before I can answer.”
Corbett’s Press Secretary, Jay Pagni, said today that because the language of the bill is still very fluid and the House hasn’t determined a course of action, it’s premature to weigh in.
“The Governor remains strongly supportive of efforts that will protect the rights and interests of Pennsylvania landowners,” Pagni wrote in an email.
A spokesman for House Majority Leader Mike Turzai (R-Allegheny) did not respond to a request to comment, but he told Capitolwire earlier this week the leadership wanted to “start the conversation on the floor.”
The House is in recess until June.

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