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.

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