This statement is prepared in response to the position of Senator Gene Yaw that the Resolution passed by the Bradford County Commissioners concerning royalties and postproduction costs cannot be acted on by the Pennsylvania State Legislature as it results in an unconstitutional interference with existing contracts.  The Bradford County Commissioners in consultation with their legal counsel issue the following statement.   

In 1979 the Pennsylvania State legislature regulated gas lease contracts between landowners and energy companies by setting forth a minimum royalty amount in an effort to protect landowners from being subject to gas lease agreements which do not fairly compensate the landowners for the oil or gas taken from their property.  This minimum royalty provision is outlined in the 1979 Guaranteed Minimum Royalty Act (GMRA), 58 Pa STAT. ANN. §33 which states under the heading Guarantee of minimum royalties that "A lease or other such agreement conveying the right to remove or recover oil, natural gas or gas of any other designation from lessor to lessee shall not be valid if such lease does not guarantee the lessor at least one-eighth royalty of all oil, natural gas or gas of other designations removed or recovered from the subject real property."  The GMRA was not challenged on a constitutional basis and The Supreme Court of Pennsylvania in Kilmer v. Elexco Land Services, 605 Pa. 413, 990 A.2d 1147 (2010) observed that the Legislature had failed to define the term "royalty" in the GMRA and stated under footnote 14 that "We note that the General Assembly is the branch of government best suited to weigh the public polices underlying the determination of the proper point of royalty valuation in the deregulated gas industry. However, until the General Assembly acts to specify the point of valuation, we must interpret the statute as written, prior to The Supreme Court of Pennsylvania expressly stated "until the General Assembly acts." 

The purpose of the Bradford County Commissioners resolution was to ask the General Assembly to act now.  The intent of the 1979 Guaranteed Minimum Royalty Act (GMRA) to provide a minimum twelve and half percent (12.5%) has not been achieved due to ambiguity in the original legislation.  Bradford County is asking the General Assembly to clarify existing legislation. 

Bradford County is not asking the legislature to regulate anything more than what is already subject to existing law.  The Pennsylvania natural gas industry has undergone exponential growth and change in the past few years.  Bradford County is asking the state legislature to update outdated legislation so that is consistent with what is currently taking place with the evolution of the Pennsylvania oil and gas industry. 

There are two aspects of the issue raised by Senator Yaw that must be addressed.  The first is the assertion that any legislative modification to the GMRA would necessarily be unconstitutional if applied to existing leases.  This view is based upon a simplistic reading of the constitutional prohibitions against impairment of contracts by the government.  Yet, as long ago as 1983, in Energy Reserves Group, Inc. v. Kansas Power and Light Co., 103 S.Ct. 697

(1983), the United States Supreme Court recognized that this prohibition is not absolute and that it must be balanced against a state's interest to "safeguard the vital interests of its people."  The Supreme Court in that case also noted that highly regulated industries have less ability to object to future regulation impacting contracts and that the elimination of unforeseen windfall profits is Bradford County is only asking the General Assembly to pursue a course of action to safeguard the vital interests of the citizens of the Commonwealth and as specifically recommended by the Pennsylvania Supreme Court when it noted "… that the General Assembly is the branch of government best suited to weigh the public polices underlying the determination of the proper point of royalty valuation." Senator Gene Yaw appears to be advocating against clarification of the legislation as requested by Bradford County.  Bradford County has clearly identified a problem which the legislation can address as it did in 1979.  Senator Yaw and the General Assembly are in the position to determine the best course of action to protect citizen landowners as the legislature did in 1979.  Bradford County is disappointed that Senator Yaw is essentially backing the natural gas industry's position on any further regulation instead of working with fellow members of the General Assembly to clarify the 1979 legislation or take other appropriate action to address an issue which is impacting the citizens of Bradford County and the Commonwealth of Pennsylvania as a whole. 

In 1979, when the GMRA was passed, the legislature recognized that the landowner had little bargaining power versus the energy industry.  However, they also recognized the energy industry companies are necessary to extract the oil and gas from the typical landowner's property given the company's resources and therefore wanted to provide the landowner protection through legislation.  It is such bold steps that are needed now by the General Assembly.

The second issue raised by Senator Yaw's comments relates to what appears to be an acknowledgement that, at a minimum, the GMRA could be corrected to protect the royalties to be obtained under new leases.  Yet, even though the Kilmer decision was decided more than three years ago, there has been no effort to address this issue by the legislature. Bradford County cannot enact legislation to address the problem concerning postproduction deductions from their residents with gas leases.  This is a State problem and the County Commissioners are asking the State Legislature to use the State's legal resources to examine the issue and come up with a solution.  The Commissioners are asking their State Legislators to consider adopting legislation that will address the issue to clarify the definition of royalty as was suggested by the Pennsylvania Supreme Court in their Court Decision. This is an excerpted article --for the complete article use this link---->http://thedailyreview.com/news/county-commissioners-respond-to-sen-...