Royalty payment legislation in works

In response to some natural gas drilling companies eating into landowners’ royalty checks with post-production costs, several state lawmakers are drafting legislation to combat the problem.

The Guaranteed Minimum Royalty Act mandates a minimum 12.5 percent royalty for these landowners. However, the definition of royalty gets fuzzy, said state Sen. Eugene Yaw, R-Loyalsock Township.

“Under the law, royalty has a special meaning: Even if it’s a 12.5 percent royalty, (the gas companies) can still deduct post-production costs from that,” Yaw said. Post-production costs are associated with getting the gas to market and come after the well is drilled, he said.

Yaw wants to make the process more accountable and transparent, though he’s not opposed to gas companies taking something out of the royalty. His legislation would have those companies prove they’ve incurred relevant costs.

“I want to give (landowners) additional tools they can use to hold gas companies feet to the fire to prove (the gas companies) do have legitimate costs and costs they are paying,” Yaw said.

State Rep. Garth Everett, R-Muncy, said a hearing on the issue in Harrisburg in June in which landowners and others testified is what brought the issue to his attention.

“There are some companies that are, in our opinion, overcharging lease-owners or landowners for these post-production costs,” Everett said.

Many of these problems seem to be concentrated in Bradford County. At the June Senate Environmental Resources and Energy committee hearing, Bradford County Commissioner Chairman Doug McLinko testified to the exorbitant post-production costs.

“Our constituents have shown us evidence of extraordinary post-production cost in Bradford County, with deductions of 40 and 50 percent all the way up to as much as 90 percent,” McLinko said. ” … We have seen checks come with zero payment. We have seen retroactive charges being billed to landowners for tens of thousands of dollars where the property owners actually have a bill sent to them and they go without any royalty payments until it is paid in full.”

Everett also is drafting legislation to repair this problem, with co-sponsors Reps. Matthew Baker, R-Wellsboro; Tina Pickett, R-Towanda; and Sandra Major, R-Montrose. Everett clarified this is not a new law, but an amendment to the existing law.

Though Everett said he supports Yaw’s legislation, his legislation would give lease-owners full rights to the entire 12.5 royalty, as long as it doesn’t contradict specific language in their contracts. These potential bills would not apply retroactively, but to contracts from that point on.

“The bottom line is, (the landowners) were told they would get 12.5 percent, and that’s what they should get. … I maintain legislatively we can say the minimum is the minimum is the minimum. I think we’re on good footing constitutionally,” Everett said.

State Rep. Rick Mirabito, D-Williamsport, not only supports ensuring lease-owners get the full minimum royalty, but is in favor of raising the minimum amount.

“We absolutely have to have control over the gas companies’ ability to keep whittling away at royalty owners’ checks…they (the landowners) wind up with practically nothing,” Mirabito said.

More money in local landowners’ hands also benefits the local economy, he said.

When it comes time to vote, “I’ll vote in a way that protects the property rights of our people here in rural Pennsylvania,” Mirabito said. He encouraged landowners to talk to him about their concerns.

State Rep. Michael Hanna, D-Lock Haven, also supports efforts to give landowners the full amount they were promised.

“Deductions should only reflect the company’s true post-production costs, rather than hidden accounting tricks,” said Hanna spokesman Bill Patton.

State Rep. Jesse J. White, D-Cecil Township, has also introduced legislation that would inhibit any post-production costs from being deducted from royalties.

Calls to state Rep. Matthew Baker, R-Wellsboro, and state Sen. Joseph Scarnati, R-Brockway, were not returned by press time.