Getting Paid: Gas Royalties In Pennsylvania

Article from State Impact – Pennsylvania

As the natural gas industry has grown, many people across the state signed leases with the understanding that under Pennsylvania law, they were entitled to a certain percentage of the money companies made selling the gas.

The Guaranteed Minimum Royalty Act of 1979 put the figure at 12.5 percent.

Using that number, a 2013 report from the Allegheny Institute for Public Policy estimated that Pennsylvanians received $731 million in royalties for 2012– a dramatic increase since the gas boom began.

However some gas leases allow companies to deduct the expenses they incur moving gas from the well to the market – things like compressor stations and pipelines.

Several years ago a number of Pennsylvania landowners complained and filed lawsuits. In dozens of cases they argued all the deductions invalidated their leases.

In 2010 the PA State Supreme Court sided with the gas industry.

In a unanimous decision in Kilmer v. Elexco Land Services Inc., the court held that since the word royalty was not defined in the law, the industry could rely on its own interpretation, which allowed for subtracting the costs of moving the gas to market.

Some landowners have continued to complain they’re being underpaid. The issue has become particularly hot topic in the state’s busiest drilling hub – Bradford County.

In response to the complaints, the State Senate Environmental Resources & Energy Committee held a hearing in June 2013. Within a few weeks Governor Corbett signed a new law requiring gas companies to clarify the deductions on royalty check stubs.

However, a group representing the state’s mineral owners was angered over language inserted in the bill at the last minute, which allows oil gas companies to combine or “pool” some leases.

They argued the measure could adversely impact some people who signed contracts years ago and didn’t anticipate modern shale gas drilling–hindering their ability to renegotiate old leases. Corbett contends the language will enhance the efficient extraction of oil and gas, while protecting the rights of landowners.

Many of the royalty complaints have centered around the state’s biggest driller, Chesapeake Energy. In August 2013, Chesapeake agreed to a $7.5 million settlement in a class action lawsuit over the issue. The company denies wrongdoing but has called the agreement “fair and reasonable.”

The settlement agreement is still awaiting approval from a federal judge.

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Are my West Virginia royalty checks right?

At least one WV Supreme Court case and one jury has found that some oil and gas companies are underpaying royalty owners by deducting unjustified expenses or using market values for calculating the royalty that are not the proper market values.  If you want to know if the royalty checks that you are receiving are being properly calculated you can get a free initial consultation with a lawyer who has volunteered to do this for the WV Surface Owners Rights Organization members and others.

Here is an update on the Tawney class action against Columbia Natural Resources, LLC (formerly Columbia Natural Resources, Inc.), NiSource Inc., Columbia Energy Group and Chesapeake Appalachia, L.L.C. (“Defendants”)

Here is a September 20,2008, newspaper article explaining that the class action against Dominion has been settled.  If your are a mineral owner with Dominion wells, you should go to the settlement web site to keep up on what is happening and what you need to do.

The Marcellus is the most economic shale play around.  In other words, oil and gas companies are getting the best bang for their buck right here in West Virginia. So, we may not be getting paid enough for our leases here.

Most lease offers right now are around $1,350 per acre on the bonus and 12.5% on the royalty.  Admittedly, with a little negotiation and some leverage it’s not hard to get to $1,500 per acre and 14% royalty.  I’ve recently seen $1,800 and 18%.  Up in the northern panhandle at one point, some large tracts were commanding $5,000 per acre on the bonus, and Wetzel and Marshall counties could count on $2,500.