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

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 [...]

Bradford County ramps up campaign for gas royalties bill

About 700 people attended a meeting in Bradford County Wednesday night where state and local officials urged them to contact legislative leaders in Harrisburg about a bill aimed at ensuring gas companies pay fair royalties. For years people in the region have complained some drilling companies charge exorbitant, and possibly fraudulent fees for processing gas– [...]

Pro-drilling county targets gas trade group

When the Marcellus Shale gas boom was taking off, Bradford County welcomed it with open arms. With more than 1,000 active wells, this region in north-central Pennsylvania became one of the most heavily drilled places in the state. But the enthusiasm turned to anger, and many people now allege they’re being cheated out of royalty money [...]

Township moves to halt gas production, citing anger over royalties

Residents in one of the most drilled-on parts of Pennsylvania want to block companies from producing natural gas, citing anger over royalty payments. The supervisors in Wilmot Township, Bradford County plan to pass a resolution Tuesday demanding, “production be discontinued from wells where landowners are having their royalty checks diminished to nothing or nearly nothing.” Wilmot [...]

Report: gas industry spent $8 million lobbying Pa. legislature in 2015

The natural gas industry spent $8 million lobbying Pennsylvania politicians last year, according to a new analysis from the nonpartisan government reform group, Common Cause/PA, and the Conservation Voters of PA. The project, called MarcellusMoney, is an ongoing effort to track the political influence of Pennsylvania’s gas drillers, who have spent $55.9 million on lobbying [...]

Royalties bill makes very brief appearance at State Capitol

A bill aimed at ensuring oil and gas royalty owners are paid fairly made a fleeting appearance at the Pennsylvania Capitol this week. “I succeeded in bringing attention to the issue and to the bill,” says Rep. Garth Everett (R-Lycoming), who on Tuesday attached, and then quickly withdrew, his royalties bill as an amendment to another measure that ultimately [...]

Gas royalties bill back in the spotlight

Royalty advocates were back in Harrisburg Tuesday urging lawmakers to pass legislation to prevent drillers from cheating landowners out of money. “The legislature should clearly define ‘royalty’ to prevent the theft of our resources through creative accounting,” says Jackie Root, who heads the state chapter of the National Association of Royalty Owners. Shortly after the [...]

Former Chesapeake Energy CEO dies in crash, one day after indictment

The former CEO and co-founder of Chesapeake Energy, Aubrey McClendon, died in a one-vehicle crash Wednesday, less than 24 hours after he had been charged with conspiracy following a federal investigation. According to Oklahoma City police, McClendon, 56, was traveling at a high rate of speed when his SUV hit an embankment of a highway overpass Wednesday [...]

Royalty errors for forest drilling: ‘They usually haven’t paid enough’

The gas industry’s downturn means Pennsylvania is getting a lot less royalty money from drilling on public forest land. But the state continues to have problems getting paid properly from the activity that’s still happening. As StateImpact Pennsylvania previously reported, the Department of Conservation and Natural Resources, which manages drilling on public lands, recently hired an in-house [...]

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