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Pennsylvania Lawmakers Resume Fight For More Leaseholder Protections

In their first meeting of Pennsylvania's 2015-2016 legislative session, members of the state Senate Environmental Resources and Energy Committee voted unanimously to advance a pair of bills that would give landowners more transparency and protection when making inquiries about their lease agreements.

The bills, SB 147 and 148, were left-over from last year. They were prompted in part by outrage from former Republican Gov. Tom Corbett, lawmakers and landowners over allegations that Chesapeake Energy Corp. and other shale drillers in the state were unfairly deducting post-production costs from royalty payments (seeShale Daily, Feb. 18, 2014).

Although the bills earned the committee's approval last March and the broader support of the full Senate, which passed both with wide margins, they failed in the state House of Representatives. They never made it beyond that chamber's energy committee. State Sen. Gene Yaw, a Republican representing portions of the heavily drilled Bradford, Susquehanna and Lycoming counties, said early action on this year’s efforts was a good sign.

"Unfortunately, last session, this legislation was not approved by the House of Representatives," he said. "Having these bills unanimously approved during the very first Senate committee meeting of the new session is a clear sign that action on these bills is essential. I do not intend to give up on this fight to protect the interests of my constituents."

Yaw led a charge early last year after Chesapeake reportedly began deducting higher fees from Pennsylvania royalty checks for costs related to processing and transportation. He sent a letter to Attorney General Kathleen Kane's office highlighting some of the concerns that his constituents had shared with him. Soon after, bills were drafted in both chambers of the general assembly for greater landowner protections and Kane took up an ongoing investigation into the matter (see Shale Daily, Aug. 29, 2014; March 14, 2014)

"Our goal is to ensure that leaseholders across Pennsylvania are treated fairly," Yaw said Wednesday after the bills cleared committee. "Most notably in Bradford County, but across my district, leaseholders have contacted me with concern over inadequate payments and questionable deductions from their royalty checks. This legislation will undoubtedly work to level the playing field."

SB 147 would allow a royalty interest owner the opportunity to inspect records of a gas company to verify proper payment. It would also require that royalties be paid within 90 days of the start of production unless otherwise stated in the lease. Originally, the bill called for payments to be made within 60 days, but the committee amended the legislation.

SB 148 would also prohibit natural gas drillers from retaliating against a landowner by terminating a lease agreement or ceasing development because a landowner questions the accuracy of royalty payments.

Joel Rotz, senior director of state government affairs for the Pennsylvania Farm Bureau, said the legislation is needed to help landowners secure "more accurate and complete information."

Another piece of legislation, however, that would have went further in clarifying the issue of post-production costs was HB 1684. That legislation would have have amended the Guaranteed Minimum Royalty Act of 1979, which provides royalty owners with a one-eighth share of production. House lawmakers had been pushing to clarify language in the amendment to specify how royalties can be calculated, but the bill failed last year in the face of industry opposition and ambivalence among lawmakers on both sides of the aisle (see Shale Daily, April 24, 2014; April 7, 2014).

The Marcellus Shale Coalition (MSC) opposed HB 1684, saying at the time that it would essentially alter the economic terms of leases and impair contracts under federal and state law. On Thursday an MSC spokesman said the organization hasn’t taken a position on SB 147 and 148, but added that the coalition “supports reasonable disclosure to leaseholders and will continue to work with the general assembly to address any real or perceived issues.”

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