Fairness and transparency in gas well operations and assessment of royalty deductions:
Recent experiences by landowners entitled to receive royalties from gas development in the Marcellus shale region have raised serious questions on the fairness and transparency of gas companies in the operation of wells and in the accounting and assessment of "deductions" from royalty payments for "costs of well operations." Many landowners previously receiving substantial royalties from productive gas wells are now receiving little or no royalties, even though there has been no reduction in quantity of gas being produced, because of serious increases in "deductions for costs of operation" being claimed and assessed by gas well operators. Current laws provide no meaningful opportunity for landowners to require transparency of well operators in providing documentation or detailed accounting of deductions being claimed or providing accurate information about the business enterprises that are actually engaged in and benefitted by the operation of the wells.
Legislation is being introduced to provide fairness and transparency to landowners and royalty owners in matters related to the operation of wells and the imposition of cost deductions from royalty payments.
- Legislation to be introduced by Representative Garth Everett will require receipt of net royalty payments of at least one-eighth of the value of the gas extracted, and prohibit assessment of "cost deductions" that would reduce the net payment of royalties below the required minimum net royalty payment;
- SB 147, introduced by Senator Gene Yaw, requires that landowners receiving gas royalties be provided information on the partnering businesses in the operation of wells, and have access to inspection of the business records of the well operator related to the wells being operated on the landowner's property.
- SB 148, introduced by Senator Gene Yaw, prohibits businesses operating gas or oil wells from retaliating against any landowner who pursues a lawsuit in good faith to challenge the business's compliance with the terms of the lease, including payment of royalties.
PFB is urging House and Senate members, especially those in the Senate and House Environmental Resources and Energy Committees, to support and promptly pass the legislation identified above to ensure fairness and transparency to landowners in operation of gas wells and the accounting and assessment of deductions from gas royalty payments.