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Pennsylvania AG Says Royalties Investigation Near Resolution

Pennsylvania Attorney General (AG) Kathleen Kane confirmed during a budget hearing with state lawmakers on Tuesday that her office is conducting a far-reaching investigation into royalty deductions made by shale drillers, saying there would soon be a "resolution."

In testimony before the state Senate Appropriations Committee, Kane said the issue was brought to her attention last year (see Shale Daily, March 14, 2014; Feb. 18, 2014). The AG's Bureau of Consumer Protection Antitrust Section, which brings legal action against overcharges and underpayment, was said to have taken on the case shortly after but Kane’s office didn’t indicate whether it sent administrative subpoenas to multiple companies (see Shale Daily, August 29, 2014).

"I can't comment on where [the investigation] is right now, but I can tell you that we're almost wrapping it up and that it was a very thorough investigation," Kane said. "I really want to commend our office. That was a lot of interviews to do in parts of the state that, you know, take a while to travel to as well."

The investigation was primarily stoked by an outcry from landowners that alleged that Chesapeake Energy Corp. was unfairly making deductions from their royalty checks to cover transportation and processing fees. But other companies were accused of similar practices too. Former Gov. Tom Corbett and lawmakers called for an investigation shortly before Kane's office took it on and by late in the year the office had reportedly widened the scope to include multiple companies.

"They've conducted hundreds of interviews with landowners; they've received their land leases and documents," Kane said of her staff's efforts. "Sometimes a page or two would be missing, so we'd have to go back and try to recreate the lease, look at every single lease for every single landowner who's complaining of a problem. Then we would go through them and divide them into those who may have been defrauded and those who may have not."

Responding to a question from state Sen. Lisa Baker, who said "it is a significant concern for many of my constituents who believe they're being scammed and not provided accurate information," Kane said "there will be a resolution." She did not name the companies her office is investigating.

But state Sen. Gene Yaw, who like Baker represents some of the most heavily drilled counties in the state, said Chesapeake is being investigated. He said his office has corresponded directly with the AG since last year and sent information on more than 50 leases for consideration on behalf of his constituents.

Dozens of landowners have challenged operators about post-production deductions in state courts. Chesapeake has not commented about the investigation since it began, but earlier this year it agreed to a larger unrelated settlement with a group of landowners to resolve similar allegations (see Shale Daily, Jan. 2; Sept. 4, 2013).

In January, Yaw reintroduced a pair of bills that failed last year in the House (see Shale Daily, Jan. 22). The bills were drafted in response to complaints about royalty deductions and would give landowners more transparency and protection when making inquiries about their lease agreements. 

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