Replies to This Discussion

Permalink Reply by Darlene Newton on February 11, 2014 at 5:20am

I would say about time!  Darlene

Permalink Reply by John Capwell on February 11, 2014 at 8:02am

Attending the rally is important. Letters to politicians stating that the practice of companies taking deductions from royalty payments does not adhere to the state mandated 12.5% royalty law. In fact the gas companies are using the deductions to improve their balance sheets. Evidence that this practice is a profit padding accounting maneuver was demonstrated when the first royalty payments were made with no deductions. Subsequent royalty payments were made with the deductions and there were retroactive deductions made also.

Let the politicians know that their responsibility is to their voting constituents not a dishonest practice. Promise the politicians support if they act in favor of reform but caution them that not supporting this reform means they lack your vote and lack your vocal support. Then keep your promise.

Permalink Reply by Bob Fuhrman on February 11, 2014 at 9:07am

We'll be there!

Permalink Reply by Barbara on February 15, 2014 at 1:45pm

How did it go?

Permalink Reply by Bob Fuhrman on February 15, 2014 at 5:25pm

It went very well. There was a good turn out and the speakers were informative.

The prospects for HB1684 passing seem good. 

Permalink Reply by Barbara on February 16, 2014 at 8:08pm

Thank you for the update. 

Permalink Reply by Tim on February 16, 2014 at 8:29pm

When is the vote?

Permalink Reply by Stan G on February 17, 2014 at 2:49pm

The bill is still in committee. Write to your rep and to the house committee chair to plead with them to move it along. It is the environmental resources and energy committee. The chair is Rep Ron Miller.

rmiller@pahousegop.com

717-428-9889

I already emailed him a few weeks ago

Permalink Reply by Todd on February 18, 2014 at 11:13pm

GOOD LUCK!! - Todd from WV

Bradford PA Landowner Rally over Chesapeake Royalty Shenanigans

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Landowners in Bradford County, PA feel like they’re getting screwed by Chesapeake Energy on royalty payments, a complaint they’ve been making for some time now (see Bradford County, PA Landowners Sue Chesapeake over Royalties). PA state law guarantees a minimum 12.5% royalty to landowners, but because Chesapeake keeps deducting post-production expenses (like pipeline costs, processing costs, perhaps marketing costs), landowners end up getting squat–in some cases a 1.5% royalty. The landowners have some righteous anger over the issue. More than 100 landowners and officials gathered at the Bradford County Courthouse in Towanda on Friday in a rally to raise awareness of the issue and to support passage of PA House Bill 1648, which would protect landowners from large deductions from their royalty checks for post-production costs.

We applaud these landowners and their elected representatives for seeking justice in this situation. The problem is, they’ve invited a fox into the hen house to help them out. State Senator Gene Yaw, whose district includes Bradford County, along with PA Gov. Tom Corbett, has asked PA’s anti-drilling Attorney General, Kathleen Kane, to investigate Chesapeake and this matter of landowners getting shorted on royalty payments. She’s only too glad to “help out.” Normally that would be a good thing, except Kane is just as likely to turn around and bite the people she’s supposed to be helping. She hasn’t met a driller yet she wouldn’t rather see behind bars (see PA AG Abuses Her Authority, Files Criminal Charges Against XTO). If it were up to Kathleen Kane, there would be no Marcellus drilling at all and consequently no royalties for landowners to argue about. We think it’s an ill-advised move to involve Kane, but that’s just our humble opinion…

Here’s the low-down on the rally last Friday, and how Chesapeake is screwing some Bradford County landowners:

Over 100 people attended a rally in Towanda on Friday in support of House Bill 1648, which would help protect landowners from large deductions being taken out of their royalty checks for post-production costs.

The bill, if passed, would make sure that landowners receive at least the state’s 12.5 percent guaranteed minimum royalty and would prevent deductions for post-production costs from reducing royalty payments below 12.5 percent.

State Rep. Tina Pickett, a prime sponsor of the bill, told those at the rally that she feels the bill has been experiencing “good momentum” in the Legislature.

She said she believes that the bill would pass the House, if brought up for a vote. “I have great hope that the Senate will pass it, too,” she said.

A hearing on the bill, which had originally been scheduled for Feb. 4 before House Environmental Resources and Energy Committee, has been postponed to March, due to a winter storm. she said.

Pickett said she is “quite confident” that the bill will “come out of committee,” so that it could be voted on by the full House.

The crowd at the rally, which was held in front of the Bradford County Courthouse, often applauded the speakers.

Without House Bill 1684 signed into law, “many of you … are being taken advantage of by the gas companies and are being paid less than what you are entitled to for your gas,” said Charley Hall, the district administrator for the author of the bill, Rep. Garth Everett (R-Lycoming County). “This injustice must end, and it must stop now!”

Bradford County Commissioner Mark Smith credited the citizens of Bradford County for spurring politicians to address the issue of post-production deductions.

Noting that state Sen. Gene Yaw this week asked Attorney General Kathleen Kane to investigate the large post-production deductions being taken out of royalty checks by Chesapeake Energy, Smith said: “Now he (Yaw) stands with us. That is progress.”

In the past, Smith has criticized Yaw for not taking action on the issue of post-production deductions.

At the rally, Smith read a recent letter to the Bradford County commissioners from Bradford County Planning Commission member Glenn Aikens, who Smith said was “really upset” that he received a royalty check in June for only 10 cents.

Aikens wrote that when he signed his gas lease on his 350-acre farm in Litchfield Township, he was promised by landmen from Fortuna Energy that his royalty would never drop below 12 1/2 percent.

Since then, the lease has been sold twice, and is now owned by Chesapeake Energy, which Aikens said is providing him with a royalty of less than 1 1/2 percent.

“I am not the only one who is having problems,” Aikens wrote. “Anyone who has dealings with Chesapeake is having the same problems.

Bradford County Commissioner Daryl Miller said: “In 1979, the state Legislature wrote the Guaranteed Minimum Royalty Act (which established the state’s 12.5 percent minimum royalty) for a reason … I can’t believe the Legislature’s intent was that people receive 5 percent, 2 percent, and in many cases, zero percent royalties.”

Bradford County Commissioner Doug McLinko said that the problem of large deductions for post-production costs needs to be stopped now. “If we don’t stop it here, it will spread across Pennsylvania,” he said.

James Barrett, a farmer from Asylum Township, said that, based on the language in the 1979 Pennsylvania Guaranteed Minimum Royalty Act, gas companies didn’t think they should be deducting post-production costs from royalty checks, because, for the first three years they were operating in Bradford County, they didn’t take such deductions from royalty checks.

It was after the Pennsylvania Supreme Court handed down its Kilmer vs. Elexco decision in 2010 that such deductions started to be made from royalty checks, he said.

Barrett also said that he had other local landowners with a one-eighth royalty written into their leases were not told that there would be deductions taken out of their royalty checks for post-production expenses, such as the costs of compressing the gas and transporting the gas to market.

While there are many leases that have language that allows for post-production costs to be deducted from royalty payments, those leases always have a royalty payment written into them that is higher than one-eighth (12.5 percent), Barrett said.

Barrett also said that it appears that some gas companies are selling the gas they produce at a reduced price to wholly owned subsidiaries of themselves, which results in reduced royalty payments to the landowner. And he said the practice of companies selling gas to themselves at a reduced price should be investigated by the Pennsylvania Attorney General’s Office.

Barbara Warburton, representing the Pennsylvania Farm Bureau, said that House Bill 1684 “is one of our priority issues.

“We are going to get this bill through,” she said.

Jackie Root, the Pennsylvania representative of the National Association of Royalty Owners, said her organization appreciates state Sen. Yaw asking the attorney general to investigate post-production deductions by Chesapeake Energy. “This has been overdue,” Root said.

The rally was organized by the Bradford County commissioners.(1)

More on Yaw and Corbett’s ill-advised request to AG Kane:

Following a request by a state senator from northern Pennsylvania, state Attorney General Kathleen Kane is reviewing whether her office has jurisdiction to investigate complaints into the costs that natural gas exploration giant Chesapeake Energy Corp. deducts before it pays royalties to the owners of land where it drills.

A Kane spokesman said Saturday that her office was undertaking the review at the request of Lycoming County Sen. Gene Yaw, whose district includes heavily drilled areas of the Marcellus Shale natural gas reservoir.

“Attorney General Kane takes her duties to protect Pennsylvania’s consumers as among her top priorities,” spokesman Joe Peters said.

Yaw wrote Thursday to Kane and asked for an immediate inquiry. He said his office has been inundated with complaints, primarily involving the deduction of post-production costs by the Oklahoma City-based Chesapeake Energy.

Chesapeake Energy spokesman Gordon Pennoyer declined comment Saturday on the complaints and declined to explain which costs Chesapeake deducts.

Yaw said the deductions sometimes exceed the amount of the royalty check and that one landowner complained it was costing them money to have gas extracted from their property.

“The words commonly used by landowners to describe what is happening are “‘cheating,’ ‘stealing’ and ‘fraud,’” Yaw wrote.

It is a significant consumer protection issue for hundreds of his constituents, he wrote.

In a separate letter Thursday, Gov. Tom Corbett wrote to Chesapeake Energy’s president and CEO, Doug Lawler, suggesting that he has complained to Lawler several times about the company’s deduction of post-production costs.

“Deduction 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,” Corbett wrote.

Corbett said he was sending a copy of the letter to Kane’s office to urge her to examine the matter and asked Chesapeake Energy to “take immediate action to restore the fair treatment of my constituents.”

Pennsylvania state law guarantees landowners a minimum one-eighth royalty – or 12.5 percent – from the production of oil and gas on their land. After the Marcellus Shale lease rush began in 2008, dozens of cases bubbled up in Pennsylvania courts over what costs could be deducted before the royalty was calculated.

In a 2010 state Supreme Court decision, Justice Max Baer noted that the term “royalty” and the method of calculating a one-eighth share is not defined by the state’s Guaranteed Minimum Royalty Act.

However, he cited various texts on the industry that say a royalty is paid from the net amount remaining after deduction of certain production and well development costs and noted that many land leases in Pennsylvania calculate the royalties minus the post-production cost to bring the gas to market.(2)

A statement by PA Senate President Pro Tempore Joe Scarnati:

Senate President Pro Tempore Joe Scarnati (R-25) issued the following statement regarding the deduction of post-production costs by Chesapeake Energy.

The Marcellus Shale Industry has been an asset to Pennsylvania – providing good family sustaining jobs while helping to advance energy independence for our Commonwealth. While most shale companies have engaged in responsible business practices, it has become apparent that one company, Chesapeake Energy, has undertaken some disturbing actions relating to post-production costs.

My colleague Senator Gene Yaw, who also represents a senatorial district that encompasses a portion of the Marcellus Shale region, has taken a lead role in making sure that Attorney General Kane is aware of this situation and requested that an official inquiry be started to review Chesapeake’s practices. The action of Governor Corbett to also support Senator Yaw’s request, through a letter he has sent to Chesapeake Energy’s President, takes a vital step to call upon the company to restore fair treatment to Pennsylvania landowners.

As we continue to work together to examine ways to further protect landowners across our Commonwealth, we must also ensure that all companies doing business in Pennsylvania understand that they need to engage in sound business practices with our residents.(3)

(1) Towanda (PA) The Daily Review (Feb 15, 2014) - Crowd attends rally for House Bill 1684

(2) AP/Washington (PA) Observer-Reporter (Feb 15, 2014) - Pa. prosecutor eyes gas royalty check complaints

(3) NorthcentralPA.com (Feb 14, 2014) - Statement on Chesapeake Energy Deduction Practices

See also:

• Columbus (OH) Business First (Feb 14, 2014) - Pennsylvania governor calls for investigation of Chesapeake Energy

Permalink Reply by wyalusing jim on February 20, 2014 at 6:17pm

no companies are " not honoring the 12.5% royalty to Pa. residence", they all pay at least the minimum royalty with deductions.

that's the law.

there has never been a law in pa which said that they cannot deduct from the state minimum. that's what the kilmer decision was about.

wj

Permalink Reply by Bill F. on February 20, 2014 at 5:27pm

I believe it is great that Bradford county commissioners are finally representing those that have been hoodwinked by Chesapeake and other NG companies ,however trying to get them to help those that have had water,health or environmental problems is another story .Why is it that when money is involved interest seems to come about ,but when people (which there are many in Bradford County alone )have a water or health related problem it can go unnoticed for a year or more like people I know that are from Bradford County too .If NG drilling companies claim to be "Responsible " let it be in actions rather than just in  their words .Additionally our politicians need to help these people when they are hurting .Not only when it is a voting year like this year ..Some of our current politicians have denied issues have existed for to long ,but now want their voters to think they are 100% on their side ,which I believe they are not (from past experience ) HELP THOSE THAT HAD OR ARE HAVING ISSUES OTHER THAN ROYALTIES TOO !!! Make it a real attempt to help !!

Permalink Reply by Kevin on February 20, 2014 at 6:02pm

What are the health related problems that are being linked to natural gas?

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