Pennsylvania

Energy. Environment. Economy.

Topics

images_of_money via flickr

Shortchanged: the fight over gas royalties

Background

As the natural gas drilling industry took off, many Pennsylvanians leased their land with the understanding that under state law, they were entitled to a certain percentage of the money companies made from selling the gas. Pennsylvania’s Guaranteed Minimum Royalty Act of 1979 put the figure at 12.5 percent.

But some leases allow drillers to share the costs of processing and transporting gas with landowners. These are known as post-production costs or gathering fees, and they show up as deductions from royalty checks.

Several years ago a number of Pennsylvania landowners complained and filed lawsuits. They argued that all those deductions invalidated their leases because they ended up with less than a 12.5 percent royalty. Gas companies disagreed. In 2010 the state Supreme Court sided with the gas industry. In a unanimous decision in Kilmer v. Elexco Land Services Inc., the court held that since the word royalty was not defined in state law, the industry could rely on its own interpretation, which allowed for subtracting the costs of moving the gas to market.

Landowners have continued to complain they’re being underpaid. In some cases, people have received royalty checks with negative balances, saying they owe money to drillers. The issue has become a particularly hot topic in the state’s busiest drilling hub – Bradford County. Many of the royalty complaints have centered around one of the state’s biggest drillers, Oklahoma City-based Chesapeake Energy. Most of its Pennsylvania operations are in Bradford County.

Chesapeake has faced numerous lawsuits over the issue in Pennsylvania and at lease six other states. In 2015, the company was also sued by the Pennsylvania Attorney General’s Office. The company called the lawsuit “baseless.”

Although many complaints have focused on Chesapeake, other drillers have also been accused of making improper payments. A royalty owner advocacy group has been pushing for the passage of a bill designed to clarify the state’s 1979 Guaranteed Minimum Royalty Act. The gas industry has lobbied heavily against the measure, arguing the fees are a legitimate business practice– in many cases explicitly spelled out in the lease– and the bill would be unconstitutional because it would amount to rewriting existing contracts.

[Photo credit: images of money/ via Flickr]

Latest Posts

Forest drilling to generate $80 million this year

Natural gas drilling in state forests will generate about $80 million in royalties this year, according to an estimate by the state Department of Conservation and Natural Resources. That’s up about $8 million over the previous year. The money will be helpful as Pennsylvania grapples with a potential shortfall of nearly $3 billion, says DCNR Secretary, [...]

GOP lawmaker reintroduces controversial royalties bill

Representative Garth Everett has called himself as a “sometimes marathoner” who is in it for the long haul. He’s now on his third attempt to pass legislation ensuring Pennsylvania landowners are paid a minimum royalty for natural gas development. On Thursday Everett (R- Lycoming) introduced House Bill 557– an effort to address complaints that some gas [...]

Senate panel approves royalty bills (again)

It felt a bit like déjà vu in Harrisburg Tuesday, as a state Senate committee unanimously approved a pair of bills aimed at providing more protections for people who receive royalty money from oil and gas drilling. The vote comes almost exactly two years after the same committee approved nearly identical bills, which were then passed by the [...]

Northeastern Pa. counties align to fight royalty abuses

Several counties in northeastern Pennsylvania have begun exploring the idea of forming a strategic alliance to pressure the state legislature to change oil and gas royalty law. The move follows years of allegations by landowners, who say some drilling companies are cheating them out of royalty money. Bradford County Commissioner Doug McLinko (R) estimates it’s amounted to [...]

StateImpact Pennsylvania’s most read stories of 2016

A look back at the stories that got the most clicks in 2016. See you next year! 10. Construction begins on the Sunbury pipeline  In August UGI Energy Services broke ground on the Sunbury Pipeline, which is expected be in service in early 2017. It begins in Lycoming County and runs 35 miles to feed gas [...]

Pa. still fighting over royalty money from forest drilling

The Commonwealth of Pennsylvania continues to haggle with natural gas companies over royalty money it believes it’s owed from drilling on state land. There are 386,000 acres of publicly-owned forest land leased to gas companies, and like private landowners, the state has had problems getting paid properly. In September StateImpact Pennsylvania reported the Department of Conservation [...]

Gas royalties bill likely dead this session

A bill aimed at addressing allegations natural gas drilling companies are cheating Pennsylvania landowners out of royalty money appears to be dead this legislative session. HB 1391 was introduced following years of complaints some drillers charge exorbitant fees for processing gas. In Pennsylvania’s northern tier, people have received notices their royalty account has a negative balance, saying [...]

Bradford County releases video slamming Chesapeake Energy

Bradford County has released a video sharply criticizing gas driller Chesapeake Energy for allegedly cheating its residents out of royalty money. Advocates are pushing for a bill to address what they’re calling the “PA royalty ripoff.” The county commissioners announced last month they would contract with a public relations firm to produce a video about the issue and [...]

Royalty advocates rally at State Capitol

Anger over gas royalties has reached a fever pitch in Pennsylvania, as the House considers a bill aimed at protecting landowners accusing drilling companies of predatory payment practices. About 150 royalty advocates rallied at the State Capitol Tuesday, accusing lawmakers of turning a deaf ear to their concerns, and allowing themselves to be manipulated by [...]

Following audit, state recovers $1.3 million in gas royalties

Following internal audits over the past year, the Commonwealth of Pennsylvania has recovered $1.3 million in gas royalty money from drilling in state forests. The Department of Conservation and Natural Resources (DCNR) has leased 386,000 acres of publicly-owned forest land for drilling, and like private landowners, it’s had problems getting paid properly. Recently the royalty [...]

About StateImpact

StateImpact seeks to inform and engage local communities with broadcast and online news focused on how state government decisions affect your lives.
Learn More »

Economy
Education