A state lawmaker in Pennsylvania has introduced a bill that would require operators to submit monthly production reports, giving landowners more information to ensure that they are receiving accurate royalty payments.
Rep. Tina Pickett (R-Towanda) told NGI’s Shale Daily that before the rise of unconventional drilling, state law required operators to report on an annual basis, but production figures were kept confidential for five years.
“In other words, it was kind of looking at proprietary information for five years,” Pickett said Thursday. “Then we changed that to every six months, early on in the drilling stage. Now we’re looking at [requiring reports from] every company, no matter who you’re getting you’re checks from.
“People have a hard time taking that six months reported period and trying to break it down to prove the monthly checks that they’re getting — maybe from four different operators on one well — and trying to audit and improve those numbers for themselves.”
Earlier this month, Chesapeake Energy Corp. said it was prepared to pay $7.5 million to settle a lawsuit by Pennsylvania leaseholders who allege the company improperly charged post-production fees (see Shale Daily,Sept. 4). Pickett said the case — Demchak Partners LLP et al, v. Chesapeake Appalachia, LLC, in U.S. District Court for the Middle District of Pennsylvania — was a factor in creating her monthly production report bill.
“As we understand it right now, we may have to add something to [the bill]; the operators may not all be living by exactly the same time period,” Pickett said. “So when we say ’30 days,’ is it going to be the same 30 days? We just want to help the landowners get a handle on auditing the payments they’re getting.”
Pickett and other lawmakers are also working on a second bill that would guarantee landowners are paid a minimum 12.5% royalty, as required by the state’s Guaranteed Minimum Royalty Act (GMRA). She said she and her colleagues hoped to “close the gap” created by the Pennsylvania Supreme Court, when it ruled in Kilmer v. Elexco Land Services Inc. that the General Assembly had failed to define the term “royalty.”
“The court seemed to be commenting on at the point that it was okay [for an operator] to deduct below what is listed as a minimum royalty payment,” Pickett said. “That case is really built around leases that have already stated no post-production charges, but down later in the lease it mentions something called market enhancement. And, of course, the companies were saying market enhancement is the same thing as post-production.”
Pickett said she has confidence that her bill will ultimately pass the General Assembly.
“I think it’s got a shot, I really do,” she said. “It’s not wrapped up in other controversies. Actually I’ve had some of the companies say to me that they’re not opposed to it. Maybe they’d like to see numbers from other folks, too. It’s all competitive. I don’t know what they’re point is on that, but some of them said to me that they would not be against it.”
The state House of Representatives reconvenes on Sept. 23.
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