SALEM, Ohio — Surprise! A royalty check just came in the mail for a well on your Pennsylvania property that hasn’t been in production for over 10 years.
Don’t cash that check. You may be giving oil and gas companies more rights than you realize.
Budget bill
A rider slipped into the Pennsylvania Fiscal Code — passed in late October — will make it easier for oil and gas companies to restart old and expired leases.
Section 1610 of the budget bill will make it harder for landowners to terminate a lease after a well has stopped producing oil and gas if the landowner accepts a royalty payment from a company that has restarted production on an old lease, or a company drilled a new well on the lease after giving the landowner 90 days to object.
“When this (provision) came out, we did become aware of it and we did oppose it,” said Mark O’Neill, director of media and strategic communications for Pennsylvania Farm Bureau.
“It opens the door for oil and gas companies to take advantage of landowners.”
Old wells
He explained many of the wells in western Pennsylvania have been around for more than 100 years.
“Oil and gas companies want to walk in an say these agreements still hold out,” said O’Neill. “This provision can significantly hamper producers’ ability to negotiate and renegotiate (leases).”
O’Neill said it can be hard to determine an “end date” with some of the older leases, which makes it harder to address concerns of old or expiring leases.
Seek help
Atty. Robert Burnett, a board member of the state chapter of the National Association of Royalty Owners said the bill “was designed to insulate a driller from challenges.”
If landowners have an old or expired oil and gas lease and receive a royalty check out of the blue, “don’t cash anything,” he said. “Call a lawyer and challenge the validity of that royalty check.”
Big issue
If the operator sends a letter to the landowner stating the company will begin drilling a new well on the property, the statute gives the landowner 90 days to object.
“If a landowner would get a letter, immediately file an objection and get a lawyer,” said Burnett.
“This is going to be a big issue in western Pennsylvania, where there are many old wells that have not been drilled on,” said Burnett.
“It’s going to require landowners to be more vigilant.”
Minimum royalties
Pennsylvania Farm Bureau is also supporting legislation that will help protect landowners from deductions in their royalty payments.
In 1979, the state passed a Guaranteed Minimum Royalty Act that set a minimum one-eighth royalty from oil and natural gas drilling, explained O’Neill.
With the development of unconventional shale gas wells (i.e. horizontal drilling in the Marcellus shale), some companies began deducting post-production costs from royalty payments (i.e. compression, dehydration, or transmission), subjecting them to fall below the state minimum.
“We’ve had some members getting royalty checks for nothing,” said O’Neill.
House Bill 557, sponsored by Rep. Garth Everett and introduced in February, would amend the minimum royalties act, providing the minimum one-eighth royalty for unconventional oil and gas production.
