Replies to This Discussion

Permalink Reply by Ann Ticopa on August 10, 2011 at 2:58pm

Josie,

Seems to me I read about a PA court case that found - at least in that circumstance - deductions could take the royalty below 1/8.  I'll see if I can locate it. 

Permalink Reply by Ann Ticopa on August 10, 2011 at 3:30pm

The case is
Kilmer v. Elexco Land Servs., Inc - PA Supreme Court - 2010
Source:
The Agricultural Law Resource and Reference Center
Marcellus Shale Resource Area
http://law.psu.edu/academics/research_centers/agricultural_law_cent...

From the Summary:
"Elexco argued that “royalties” are to be determined by the net-back method. Under the net-back method, the total owed to the landowner is one-eighth of the sale price of the natural gas from the landowner’s acreage, minus one-eighth of the post-production costs spent treating and bringing the gas from the landowner’s acreage to the place of sale. The Kilmers argued that landowners should receive a minimum payment of one-eighth of the sales price with no deductions for post-production costs, as that would fall below the one-eighth minimum requirement.
...
The Pennsylvania Supreme Court held that royalties are calculated under the Guaranteed Minimum Royalty Act using the net-back method, meaning that a proportionate share of the post-production costs may be subtracted from the sales price when calculating the landowner’s royalty."

..

Permalink Reply by Doug Pierson on August 11, 2011 at 3:15am

Interesting Ann.  I wasn't aware that that court case was so recent.  That same language from the Court is actually in my lease....it's an old lease.

Maybe that was the reason for the language in HB 1410; that the royalties be based on gross and not net. As I continue to re-read that thing, I'm still wondering whether the language in it would pertain to new leases only, or also impact existing leases.  I think it depends on the scope of the "shall not be valid" phrase.

http://www.legis.state.pa.us/CFDOCS/Legis/PN/Public/btCheck.cfm?txt...

 

Permalink Reply by Ann Ticopa on August 11, 2011 at 5:12am

Once I saw the 15% minimum, I didn't spend much time attempting to decipher the language; thought there was little chance the bill would pass.  (Which is not to say that even if I had spent the time I'd have understood it.)

Permalink Reply by Doug Pierson on August 12, 2011 at 12:52am

That's interesting - that you don't think the bill would pass.  Why...because of all of those nice, big "campaign contributions" that the gas companies will make?

Permalink Reply by Ann Ticopa on August 12, 2011 at 3:36am

They don't seem to be able to get it together to pass anything, even legislation I'd think would be a no-brainer.  For example, increase the well (and pipeline?) setback to a distance that's acceptable to mortgage lenders and homeowner insurance carriers.  .