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Officials Say Pennsylvania Royalty Bill Stalled in Legislature

Supporters of a Pennsylvania bill designed to shield royalty owners from post-production costs say the measure has stalled in the state House of Representatives, and they allege that a handful of gas producers, their allies and others are trying to thwart the bill's passage.

HB 1684, which would amend the Guaranteed Minimum Royalty Act of 1979, was referred to the House Environmental Resources and Energy Committee last September. On March 17, the bill advanced to the full House after passing the committee on a 25-0 vote, but it was removed from the table the next day.

"The snag is simple," Doug McLinko, chairman of the Bradford County Commissioners, told NGI's Shale Daily on Thursday. "The gas industry is roaming the halls of Harrisburg, misleading a lot of representatives and senators."

McLinko, a Republican and "unequivocal supporter" of Marcellus Shale development, said he is nevertheless angry that some oil and gas companies are "raiding the royalties of small property owners to 100% and sending them bills" for post-production costs. He specifically mentioned Chesapeake Energy Corp., which has been fighting a class action lawsuit in the state over such allegations (see Shale Daily, April 10).

He added that the Marcellus Shale Coalition (MSC) needed to do a better job of "policing their own ranks. We've been complaining about this for years to no avail. We held rallies and we finally got the attention of the governor. But everything has flatlined since then.

"I'm really upset about it. It's an odd place for me to be because I support the development, period. Having to fight against them is another matter. It's not all of them, just a few. Chesapeake has hit our royalty receivers. The MSC has been roaming the halls in Harrisburg. The bill's gotten stalemated, and that's what they wanted to do. And for the life of me, I don't understand why."

On March 11, just days before HB 1684 advanced out of committee, MSC Vice President for Government Affairs Jim Weltry asked lawmakers to oppose the bill.

"This legislation seeks to significantly alter the economic terms of leases, which is an unconstitutional impairment of contracts under both the state and federal constitutions," Weltry said. "In essence, this bill attempts to reallocate money and retroactively alter the terms of agreements among private parties.

"Post-production costs...are a legitimate business expense which can be allocated among the 'owners' of the gas as defined in the leases negotiated by the parties. There is nothing improper about post-production costs that warrant government intervention in the contract negotiations of private parties."

MSC spokesman Travis Windle told NGI's Shale Daily that HB 1684 "and other similar bills serve as the latest reminder that landowners, consumers, and industry all have a great deal at stake in Pennsylvania's natural gas development -- and that proposals like this equate to a vast legislative overreach that could place much of it at risk.

"Adding additional costs to the way industry and our partners operate only serves to undermine development in Pennsylvania and make the commonwealth's landscape less competitive. In the end, this would be a loss for businesses, landowners and families alike."

Raymond Smith, spokesman for the Pennsylvania House Republican Caucus, said HB 1684 was "snagged behind closed doors," with opposition to the bill coming from Democrats, gas industry supporters and others.

"There are supporters of the gas industry in both caucuses," Smith said Thursday. "There are some other members that just have general concerns with it. They're trying to work up amendments that can solve those problems."

Although Republicans control both houses of the state legislature, McLinko said the debate over HB 1684 was not necessarily a partisan one. But he added that an electoral defeat for Gov. Tom Corbett in November would be bad for Marcellus Shale development. Many Democratic candidates for governor support a severance tax (see Shale Daily, Jan. 28).

"Quite frankly, if Pennsylvania loses this governor, we're going to lose jobs and billions of dollars of revenue out of the state coffers," McLinko said. "One of the problems is that since he's been elected, the governor has not told the entire state what benefits every Pennsylvanian gets from the Marcellus Shale. He's been a horrible communicator.

"Consequently, you've got all these ads on television. It's created a complete whirlwind of discussion in different parts of the state over a severance tax, and some elected officials don't know what they're talking about. Down in southeast and southcentral Pennsylvania, nobody is talking about the benefits of shale. All they're talking about it tax, and that's so irresponsible it's not even funny."

McLinko said two operators with a significant presence in Bradford County -- Talisman Energy Inc. and Southwestern Energy Co. -- represented the "gold standard" for oil and gas leasing.

"Talisman takes nothing and Southwestern is very reasonable on post-production costs," McLinko said. "If [other operators] followed the Southwestern model, we wouldn't be having this discussion right now. It's because of a couple greedy operators that just can't help themselves that this thing is a mess."

Two organizations, the Pennsylvania Farm Bureau and the state chapter of the National Association of Royalty Owners, have been pressing for HB 1684's passage (see Shale Daily, April 7).

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