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 when little or no reduction has occurred in the volume of gas being produced, because of extremely high “deductions for costs of operation” being claimed and assessed by gas well operators. Current laws provide no meaningful opportunity for landowners to command transparency from well operators in providing documentation or detailed accounting of deductions being claimed or in providing accurate information about the business enterprises that are actually engaged in and benefitted by the operation of the wells.
Legislation introduced by Senator Gene Yaw:
• Senate Bill 138: Would require information on establishment of joint ventures for gas or oil development be provided annually to landowners subject to a gas or oil lease. The bill would also provide the opportunity for landowners, upon written request, to inspect lessee’s records related to well development and operation on the property for which the landowner is receiving royalties.
• Senate Bill 139: Would prohibit lessees of gas or oil leases from retaliating, through discriminatory stoppage or reduction in well production or otherwise, against a person entitled to royalties who brings in good faith a legal action against the lessee to challenge the legal adequacy of the royalties being paid or the legality of deductions from royalties being assessed.
Both bills were reported favorably from the Senate.
HB 557 introduced by Rep. Garth Everett
• Would require net royalty payments of no less than 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. The bill would also place upon gas well operators the burden to prove the net amount of minimum royalties paid to landowners are justified and properly accounted for.
ACTION FOR PFB MEMBERS:
Contact your Representative and Senator urging support and to work for prompt passage of HB 557, introduced by Rep. Garth Everett, to ensure landowners will receive fair royalty payments from production of gas wells and require gas well operators to better justify and account for deductions attempted to be made from royalty payments.