Corbett challenges royalties of gas producer Chesapeake Energy

February 14, 2014 11:42 PM

By Karen Langley / Post-Gazette Harrisburg Bureau

HARRISBURG -- Gov. Tom Corbett and a state senator from northeastern Pennsylvania are calling for an investigation of how Chesapeake Energy deducts costs from natural gas royalty payments owed to landowners.

In a letter Thursday to Chesapeake CEO Robert Lawler, Mr. Corbett said he was disappointed that complaints of Pennsylvania landowners had not been heeded. He went on to ask state Attorney General Kathleen Kane to "examine this issue" and promised the support of his administration.

"As you know, for some time I have received complaints from my constituents and your leaseholders regarding practices of Chesapeake Energy which strike many as unfair and perhaps illegal," Mr. Corbett wrote to Mr. Lawler.

"Deductions of post-production costs, in a manner which seemingly few if any other operators in Pennsylvania utilize, has caused a significant erosion of the trust and goodwill the natural gas industry has established with Pennsylvania leaseholders and local communities."

A spokesman for Chesapeake declined to comment.

In October, the Pittsburgh Post-Gazette reported that Chesapeake Energy was deducting "impact fee" payments out of oil and gas lease royalties.

The state impact fee is the tax that drillers pay to the state, meant to help counties and towns pay for, among other things, repairing road and bridge damage caused by the heavy gas trucks, preserving water supplies, and repairing water and sewer systems.

But Act 13, the state's major oil and gas law, bars such fees from being deducted from royalty payments.

Ms. Kane was also asked to look into the matter by state Sen. Gene Yaw, R-Lycoming, who wrote in a letter that his office had received complaints about Chesapeake's practices from farmers, accountants and other landowners. The primary complaint, he wrote, involved the deduction of post-production costs.

"One landowner related that the deductions were greater than the royalty payment, so it is actually costing the landowner money to have gas extracted from the property," he wrote.

Joseph Peters, a spokesman for Ms. Kane, said attorneys are reviewing the issue to determine if the office has jurisdiction. If so, he said, it would examine whether involvement by the attorney general would affect any private lawsuits.

In his letter, Mr. Corbett said he supports bills in the General Assembly "aimed at better protecting the rights of our landowners, particularly with respect to fair treatment of royalty payments."

Mr. Yaw has introduced a package of legislation aimed at oil and gas leases. One bill would allow landowners to inspect gas company records to verify payments. Another would ban a gas company from terminating a lease in retaliation for an owner questioning the accuracy of royalty payments.

Karen Langley: klangley@post-gazette.com.



Read more: http://www.post-gazette.com/local/marcellusshale/2014/02/15/Corbett...

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Permalink Reply by john on February 27, 2014 at 4:49am

Does anyone recall the Kilmer vs Exelon case involving minimum payments when the SC decided in favor of gas companies.

Blame them.

The PA Supreme Court issued an opinion interpreting the Guaranteed Minimum Royalty Act. The Court's opinion finds in favor of the gas company, meaning that leases can provide for calculation of royalties that deduct post-production costs from the amount due the landowner

Permalink Reply by john on February 27, 2014 at 6:00am

The  job of the CEO is to max profits for his company to the benefit of the shareholders.

It was up to the Pa Supreme Court to protect the rights of the lessors in the 2010 class actino suit and not make them get more than they should.  Blame the courts.

And blame the courts if the entire Act 13 gets trashed and the impact fees get rewritten so that the small rural counties where the impacts occur get less of the fees.   Or there may be a tax, in either case the small rural counties will get screwed becaue the tax will go to Phila, Pittsb, and larger populaltion cities.

Permalink Reply by john on February 27, 2014 at 7:49am

correction:

was job of the PA SUPREME COURT to be on side of the landowners and

make sure the gas companies did not get too much.  Clearly the judges

had no clue . 

Permalink Reply by Bill F. on February 27, 2014 at 5:30am

This is a great thing but comes a little late (considering it's a election year.) Now all he has to do is recognize that there are people who have been affected from the NG drilling in PA and elsewhere .I know many here don't like this but we cannot forget about those people because any day it can be you !! 

Permalink Reply by daniel cohen on February 27, 2014 at 7:28am

Long overdue, and certainly needed. Senator Yaw is to be congratulated for his statesmanlike position on this matter.

Dan

Permalink Reply by Bill F. on February 28, 2014 at 3:27am

I wouldn't give Yaw that much credit .It's an election year and before this only a few months ago he told those that were having royalty issues to get a good lawyer .this was public comment .

Permalink Reply by daniel cohen on February 27, 2014 at 10:51am

Bill & John,

You're both right of course, but this suggests that we may have some momentum going forward. Now is exactly the time to raise our collective voices so that the politicians are aware that we are watching. and will hold them accountable.Now is the time to require independent verification of production numbers and market prices paid.

My personal issue is with the DEP, and its abdication of oversight responsibility.Basically we need the good offices of oversight groups, similar to what they have in Ohio, to be empowered to hold companies feet to the fire  environmentally,and to avoid excesses on the O/G companies part. 

Dan

Permalink Reply by john on February 28, 2014 at 3:21am

There are some who point to other states as examples of their superior oversight.

But no one ever articulates why these states are better, if indeed they are.

Even John Hanger says it can be done better and all I have ever heard him say is we need a a tax  not an impact fee.  (the tax would go to the larger counties and screw the smallelr counties).

Truth be told, Pa some of the best regs. and is milesl ahead of many states.

But one thing that IL just passed is mandatory testing after drilling, in Pa

post drilling is option of homeowner and at his expense.

Permalink Reply by Bill F. on February 28, 2014 at 3:27am

I have been voicing to the DEP for the last 3 yrs. Not much help for those with issues and it can take over a year or more if you have issues caused by the drilling .I have also spoke a 2 EQB hearings asking for more mandatory reg's on things that need to be addressed .We will see.how this goes !

Permalink Reply by john on February 28, 2014 at 3:39am

can u be specific?  like what issues and improvements   I have a pal who works closly with DEP recommending changes , I can ask what is in the mill; 

How do you voice to DEP?

Permalink Reply by Bill F. on February 28, 2014 at 6:50am

How do I voice DEP "...POOR " ...as far as specifics ,water contamination caused by  a local pad .It is under determination now from the PA DEP.Just one of the many problems in past 3 yrs .Where Bradford County .I have already brought some suggestions on mandatory Reg's by way of the EQB hearing that were held in PA. We will see how much they care .

Permalink Reply by Jeff Kerr on February 28, 2014 at 3:39pm

about time our elected officals stood up for the people and not big bussness

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