Deductions from landowners' shale gas royalties digging too deep, committee told

By Laura Legere / Pittsburgh Post-Gazette

Deductions for gas transportation and processing costs have reduced some Pennsylvania landowners’ monthly shale gas royalties to less than a quarter of what they expected to receive based on their lease contracts, sometimes leaving them with a monthly balance of $0, according to testimony presented Tuesday during a House committee meeting in Harrisburg.

Gas leaseholders hit by steep deductions include the state Department of Conservation and Natural Resources, which saw its 20 percent royalty stake brought down to 4.6 percent in one month — an adjustment worth $34,000 — even though the agency’s shale gas leases on state forestlands explicitly forbid the practice, in one example highlighted at the meeting.

State forester Daniel Devlin said DCNR works with companies to get paid its full share when it finds deductions and, for the most part, the agency has been successful in getting reimbursed. He called the example “an outlier.”

“We are very aware of it,” he said. “We are pursuing it to the extent that we possibly can.”

The bill under discussion Tuesday, House Bill 1391, would prohibit companies from taking deductions that would leave a mineral owner with less than the one-eighth, or 12.5 percent, minimum royalty defined by the 1979 Guaranteed Minimum Royalty Act.

The bill’s primary sponsor, Rep. Garth Everett, R-Lycoming, unsuccessfully pushed for a broader royalty protection bill in a past legislative session. This proposal is much narrower, but constitutional concerns persist about the bill’s potential interference with existing gas lease contracts, many of which either allow for or are silent about deductions.

An attorney for Downtown-based EQT Corp. — the only invited company that agreed to appear at the meeting, according to the committee’s chairman Rep. John Maher, R-Upper St. Clair — was clear that the industry will swiftly challenge the law if it is adopted.

“I’m positive the producers will tackle this issue as to whether or not it’s fair to go back and change these negotiated royalties,” EQT attorney Jessica Brisendine said.

Advocates for royalty owners said the bill would provide necessary relief to landowners who are otherwise forced to fight unfair deductions in court one by one. Bradford County landowner David DeCristo shook a thick stack of paper in the air — his legal bills, he said — to prove the point.

The Pennsylvania attorney general’s office sued Oklahoma City-based Chesapeake Energy Corp. in December for allegedly deceiving and underpaying thousands of landowners in violation of their lease terms.

Added up, unfair deductions are taking millions of dollars from the state’s roughly 80,000 royalty recipients, said Jackie Root, president of the Pennsylvania chapter of the National Association of Royalty Owners.

“We believe the intent was clear in 1979 — Pennsylvania royalty owners should not receive less than 12.5 percent — and the legislature should clearly define royalty to prevent the theft of our resources through creative accounting,” she said.

The meeting on Tuesday was informational only and a vote has not yet been scheduled for the bill.

Read more: http://powersource.post-gazette.com/powersource/policy-powersource/...

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Replies to This Discussion

Permalink Reply by david starcher on March 18, 2016 at 11:47pm

Kile. My trans fees for ngl's in Dec are higher than what I got for ngl's. They took from the gas proceeds to cover that cost. Don't see anything about market enhancement or gross proceeds clause on the statement.

Permalink Reply by david starcher on March 19, 2016 at 12:15am

Kyle. Yes for the market enhancement clause and gross at wellhead.

Permalink Reply by Kyle Nuttall on March 21, 2016 at 12:43pm

I haven't seen them give both of those clauses at the same time.  That's odd.

0ym9x5ag7ury2Permalink Reply by 0ym9x5ag7ury2 on March 21, 2016 at 4:48pm

David,

     What happened is your producer is watching Chesapeake steal all of Ohio's NGLs, now they want in on the action. I'm surprised you were told you had NGLs. A lot of landowners in WV don't know they have NGLs bein g stolen from them.

Chesapeake is in violation of the Ohio RICO statute, and several Federal laws.

After 110 years of theft, its time to lock some folks up.

By the way Donald's people don't answer their emails. I've sent them enough evidence to shut down Bible johnny's bid for the White House for good. The Ohio CAUV Land Real Estate over tax and the Multi Billion Theft being overlooked in Ohio.

Plus why would a Shale Play State gov or atty gnl ignore theft?

$$$$$$ and not the PAC Fund kind, the kind that can put you in the Pen.

Permalink Reply by Brian Woodcock on March 18, 2016 at 6:43am

We all know this is a long and protracted legal battle that may eventually be resolved by compromise by who knows. However in the mean time the only hope is that because of the very low oil and gas prices, due to our "friends" in the Middle East, there is this a silver lining. As soon as leases expire or the wells stop producing, get the leases released. Then when ever they come back to drill or produce more gas in the future, and it will come. Make sure your new lease and sign up bonus is adjusted to your liking.

I know! it's along time coming, but so is the legal battle.

Permalink Reply by Joseph-Ohio on March 19, 2016 at 6:41am

If your scenario plays out let's all hope and pray we don't end up with the SOS but on a new and different day.

Permalink Reply by bo boboski on March 19, 2016 at 7:26am

Agreed. I think the best thing to do now,with all the theft of our minerals,if you haven't been drilled on,is to let our leases expire,get released,then wait for round two. Next time,we will be much,much smarter,much more capable of negotiating contracts that protect us from theft,and gets us what our minerals are really worth. Maybe there will be laws and government officials to protect us by then also. Maybe there will be O&G CEOs in jail by then for an example of what happens when you steal from landowners in this country. If we are getting $O. for what we own below us,why even bother letting them in our doors and on our land.  That scenario may be years down the road,but if we wait,maybe our children will benefit.

Permalink Reply by Joseph-Ohio on March 19, 2016 at 5:21am
Reads to me like a train wreck looks.

Train wrecks look a horrible and crooked mess to me.
Permalink Reply by william Allen. Ladd on March 19, 2016 at 8:31am

Look for Jackie Root. Jackie is working for the landowners in the state of Pennsylvana to change this royalty deduction. Jackie is making trips to Harrisburg and putting forth our complaints to who ever can help change these unfair deductions. She needs our support and input

Permalink Reply by david starcher on March 19, 2016 at 11:05am

Does Jackie also work in WV?

Permalink Reply by william Allen. Ladd on March 19, 2016 at 11:21am

I don't know but you can easily find her by punching in her name on a search blank.

Permalink Reply by Jackie Root-CMM on March 25, 2016 at 12:01pm

Thank you for the endorsement, yes NARO PA is working hard on behalf of Pennsylvania royalty/mineral owners. You hit the nail on the head, we need support and input. We will be gathering in State College March 30- April 1 for our 6th Annual Convention. You can bet that deductions will be a hot topic.

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