Energy. Environment. Economy.

Are Marcellus drillers cheating the state? Agencies take a closer look

Pennsylvania has leased thousands of acres of public land for Marcellus Shale drilling. Now that the gas is flowing, the money is too. But state agencies are taking a closer look at whether they're getting paid properly.

Joe Ulrich/ WITF

Pennsylvania has leased thousands of acres of public land for Marcellus Shale drilling. Now that the gas is flowing, so is the money. But state agencies are taking a closer look at whether they're being paid properly.

People who leased their land for Marcellus Shale drilling have been complaining for several years that some companies are cheating them out of gas royalty money.

It turns out the commonwealth of Pennsylvania is having the same problem. But the issue is so complex and convoluted, the state doesn’t even know how much money it’s owed.

“It’s complicated”

Gas drilling on state-owned land has sent hundreds of millions of dollars in royalties to Harrisburg. Private landowners have received millions more. But some companies have been accused of underpaying. Royalty disputes have led to several class action lawsuits and an ongoing investigation by the state attorney general’s office.

Towanda-based attorney Chris Jones says his clients don’t understand why the state hasn’t done more to protect them.

“Many times we’re being asked, ‘How come the state isn’t doing anything? How come there isn’t anything to stop what the gas companies are doing with our royalties–with our money?’”

Pennsylvania has its own problems– specifically two agencies managing drilling on public land: the Department of Conservation and Natural Resources (DCNR) and the Game Commission.

“We’ve been conducting investigations for some time now,” DCNR chief counsel Richard Morrison told StateImpact Pennsylvania in January. “It’s an internal process. It’s complicated and will take some time.”

He didn’t want to say which companies are under scrutiny, and the department has declined to comment further, citing the ongoing investigation. However documents obtained by StateImpact Pennsylvania through an open records request show most of DCNR’s problems are with Oklahoma City-based Chesapeake Energy. The company has been widely accused of charging landowners exorbitant fees known as post-production costs. Chesapeake declined to comment for this story.

Post-production costs are sort of like the gas industry’s “shipping and handling fees.” They’re the expenses of moving gas from the well to the market and include things like compression, dehydration, and pipeline transport.

Chesapeake has leased thousands of acres of public land from DCNR and the Game Commission—but no one really knows how much money could be missing from state coffers.

DCNR officials say none of its leases permit oil and gas drillers to charge post-production costs, but Chesapeake disagrees. Emails between the two parties show disputes going back several years and continuing to the present day. DCNR complains to the company about inaccurate or murky reporting on everything from how much gas is produced at wells, to its selling price.

“It’s going on with every company”

The Game Commission is still trying to sort out exactly what is and isn’t allowed under its leases. Mike DiMatteo oversees the commission’s oil and gas program.

“It’s definitely on our radar,” he says of the royalty issues. “We are aware they’re taking deductions, and we’re trying to assess the impact. Chesapeake seems to be targeted by a lot of investigations because they’re a big producer. It’s going on with every company.”

Chris Jones and several other attorneys recently filed a federal racketeering lawsuit against Chesapeake, alleging it’s part of a criminal conspiracy– along with partner companies Anadarko, Mitsui, Statoil, and Williams– to defraud private landowners. None of the companies would comment for this story.

“I’m surprised the state is shocked this is happening to them as well,” says Jones. “They don’t seem to be doing certain things I’d think they’d be doing– like having something that could verify the production from the wells.”

DCNR does perform audits of royalty statements and recently ramped up its efforts. It has a contract with Penn State University to check well volume information and hired a new accountant to review royalty statements. The agency is also planning to contract with an outside accounting firm.

The state Game Commission says it doesn’t have the resources to do that.

“We’re not officially auditing the companies,” says Matteo. “We review the statements and make sure we’re getting paid, but we don’t have an open investigation.”

The situation really bothers state Rep. John Maher (R- Allegheny.)

“I want to make sure the royalty payments the state is due for gas production are being fairly paid,” he says.

As the new chair of the House Environmental Resources and Energy committee, Maher’s vowing to take a fresh look at a bill aimed at limiting gas companies from withholding royalty money in the form of post-production costs.

“There needs to be action”

State Rep. Tina Pickett (R- Bradford) co-sponsors the measure.

“I don’t think initially as a state, we really looked at the financial angle of this,” she says.

Pickett represents one of the most drilled-on parts of Pennsylvania and supports the gas industry. But she’s troubled the state has to carefully comb through every royalty statement and hire more accountants to double check everything.

She says it’s time to update royalty laws and crack down on problem companies.

“We’ve talked about it. There’s been lots of news about it. There’s been lots of discussion about it, but there needs to be some action,” she says. “This is not something that should be allowed.”

The gas industry has lobbied heavily against the royalty bill—calling it a legislative overreach that violates contracts. The measure went nowhere during the last legislative session and it has not been reintroduced yet.

Meanwhile, state officials are still trying to get a handle on how much money they may be owed.


  • tom

    Thanks to Corbett.

  • South Philly

    The state wasn’t “looking at the financial angle”? So we were poisoning people for fun?

  • Gary

    No one complains when the price of Nat Gas is high and they receive nice royalty fees, but when the price drops like the last couple of years then everyone is complaining. The Nat gas companies should shut in as much Nat Gas as possible , cause a shortage and then everyone will be happy except the Consumer. Between the low price of Nat Gas and OIl, the companies are losing money big time. You will never hear of anyone complaining about an oil company losing money. Just nature of the beast !!!!!!!

    • Cathy

      Before the Marcellus Shale, the lessors were happy with a one-eighth gross royalty. When the boom hit for leasing the Marcellus Shale, attorneys representing landowners and landowner groups wanted the highest bonus and net royalty rate, without regard to the downside. The state should not be responsible for renegotiating lease terms. I warned many landowners and attorneys if the gas prices drop and if costly pipeline infrastructe is installed for marketing gas, that the lessors could end up with less than one-eighth royalty. Some listened and others could not see pasted the bonus money and net royalty rate. I thought that landowners would look to their legal representation to fix the problem, not the state. If the gas prices were at an all time high, this would not be an issue.

  • Julieann Wozniak

    Corbett let ‘em get away with no supervision for four years. Whadda you think???? This is an industry that runs on cutting corners, grift, and greed.

  • Lisa DeSantis

    Lay down with Big O$L you get the shaft!

  • crystalpoint

    There is a Department of Conservation and Natural Resources (DCNR), official, hiding behind every tree! How stupid do you think Gas and Oil drillers are, after all the scrutiny that they are under, that they would try and hide anything? Leave them alone, (DCNR) and go find a job that you could be useful at, as well as be cost effective!

    Ray P. Smith, Sr.

  • NorthernTier

    It’s not the state agencies that would be cheated; it’s state residents and/or taxpayers. Plus, the gas is a non-renewable resource; no do-overs.

    Another possible reason for the state giving more attention to royalties is lack of new leasing income. Even if Corbett had won, it was doubtful there would be much industry interest in his proposed new leases. It would be interesting to know the status of the currently leased DCNR land. What acreage/percentage is in what stage? Also, at least some of th DCNR leases have non-performance penalties. Anyone know if the penalty phase has been reached on any leases and, if so, is the state collecting the penalty?

  • calvinspalhobbes

    The Oil & Gas Lease is a “Contract.” All the provisions of that contract are contained in the lease language. Try reading it. If you don’t understand something, consult with someone who does. A Lessor is obligated to pay their portionate share of production costs and taxes. Noboby gets a free ride. Unless otherwise specified within the lease, the royalty paid to the Lessor(s) is always subject to the costs of separating, treating, marketing the gas and/or oil. The only question is: ethically, can a production company use its subsidiaries to treat the gas, and sell the gas to its own entity to market the gas. I do agree that some producers don’t operate ethically. But then I also read about a whole lot of whiners that complain they got shafted. Most of the whiners are just plain ignorant!

    • NorthernTier

      Not exactly. “Proportional share” is generally found in the lease clause that refers to taxes and fees, not post-production costs. This is the clause that (some) landmen tout as helping pay for withdrawing land from Clean and Green. I’ve not seen it “spelled out” in a lease that a lessor is responsible for a share of post-production costs. But apparently it’s common enough that it’s assumed unless it’s explicitly disclaimed in the lease. A lessor would generally not pay production costs unless he/she is buying into the well.

      That said, it doesn’t excuse landowners from (not) conducting due diligence before signing a lease … or any other contract.


    The shale boom is winding down in PA anyway. Due to market conditions and the Wolf administration many gas companies are leaving the state all together or significantly cutting back operations. How many Range Resources commercials do you see anymore? NY state was smart banning fracking all together. What that means for them is 20 years from now when we’ve fracked everywhere there was gas and the prices are back up; NY is sitting atop a gold mine of unfracked gas and I’m sure the ban will be lifted.

  • c_chandler

    fracking has cost many uninformed landowners poisoned water wells and roads to be “controlled” by illegal gunholding so-called security guards.

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