Proposals intend to protect royalty owners
Local state congressmen have introduced bills to address concerns of natural gas leaseholders.
State Rep. Garth Everett, R-Muncy, and state Sen. E. Eugene Yaw, R-Loyalsock Township, both said they’ve heard concerns from landowners with royalty agreements with natural gas companies, and are putting forth bills that would address different problematic aspects.
Everett’s legislation, co-sponsored by state Rep. Matthew E. Baker, R-Wellsboro, would clarify a 1979 state law regarding the minimum royalty payment for landowners so the deduction of post-production costs from unconventional wells would not result in royalty payments less than the guaranteed minimum. Post-production costs are incurred between the wellhead and a final market point of sale and typically include dehydration and transportation.
The 1979 law guarantees leaseholders one-eighth of their royalty payments, but doesn’t specifically mention post-production costs, Everett said, so gas companies are dipping into the royalty payments to help cover post-production costs.
“I’m amending that act, that post-production costs can’t take royalty costs below 12.5 percent,” Everett said, and if passed, will apply to all leases since 1979 and royalty calculations after the law goes into effect.
When the gas companies approached landowners in 2005 through 2007, they used “high-pressure sales tactics” when talking landowners into leasing their land, assuring the landowners the 1979 law would protect them from royalty deductions, Everett said.
“They believed it and bought it,” Everett said, and now he thinks it’s time for gas companies to stop dipping into royalty payments as they are getting 87.5 percent of their share, although many gas companies are against his bill, he said.
“I tell the gas guys: ‘If you guys play fair, we won’t have to do this,’ ” Everett said.
From the state Senate side, Yaw introduced the Oil and Gas Lease Protection Package, featuring three bills. The first bill would expand upon Act 66 of 2013 by allowing royalty interest owners the opportunity to inspect records of gas companies to verify proper royalty payments, and deductions for post-production costs.
The second bill would prohibit a gas company from retaliating against any royalty interest owner by terminating their lease agreement or ceasing development on leased property because a royalty interest owner questions the accuracy of current royalty payments. To Yaw’s knowledge, no gas company has ever done such retaliation, but this bill is to assuage many leaseholders’ fears.
“People are afraid to question those costs,” Yaw said.
The third bill would require a gas company to record a satisfaction piece in the county Recorder of Deeds office where the oil and gas well is located within 30 days of the lease’s end, similar to what a mortgage company does after a mortgage is paid off. This is so leaseholders aren’t left wondering about the state of their leases, Yaw said.
Yaw will support Everett’s bill if it gets to the Senate, and both Everett and Yaw said they have strong support for the bills, which are still in the preliminary introduction stage, and final language has yet to be drafted. Everett said his bill needs to be revised to address how it impacts wet natural gas in western Pennsylvania, as its production process is more complex.