New Castle News

September 20, 2013

State considering gas lease rules

John Finnerty
CNHI

HARRISBURG — Fighting back against gas-industry-friendly rules, lawmakers have introduced a pair of bills intended to roll back provisions that treat the industry better than Pennsylvania landowners.

One bill would bar gas companies from deducting costs to wipe out much of the royalty payments owed lease holders. Pennsylvania law guarantees that lease holders get royalties of at least 12.5 percent. But, some gas companies have been deducting post-production costs, and providing royalties below that legal limit.

“When landowners signed leases stating that they would receive one-eighth of the value of the gas from their properties, they were not told that their share could be drastically reduced by a gas company’s accounting magic,” said Rep. Garth Everett, R-Lycoming County, when he announced the proposed legislation.

Another bill, authored by Rep. Jesse White, D-Allegheny County, would make it illegal for gas companies to use outdated language in gas leases to force landowners to allow fracking under their properties.

It is an attempt to undo the damage from Senate Bill 259 signed into law as Act 66 this summer. Proponents say the legislation allows gas companies to act when old drilling leases lack language about fracking. Critics say giving that power to the gas companies strips a negotiating opportunity from land owners.

Dale Tice, a Williamsport attorney specializing in gas drilling law, said that the portion of the White bill targeting Senate Bill 259 would be worthwhile.

A trade association representing gas drillers opposes bill both bills.

Steve Forde, a spokesman for the Marcellus Shale Coalition, called the measures a “legislative overreach.”

“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,” Forde said. ”In the end, this would be a loss for businesses, landowners and families alike.”

State Sen. Gene Yaw, R-Lycoming County, the primary author of Senate Bill 259, said the most controversial language in bill was added in the House, where it was approved overwhelmingly. Now, lawmakers in the House are trying to repeal the amendment.

“We concurred with their amendment and now people are criticizing me.”

Yaw said he believes the amendment was originally intended to be environmentally friendly because it makes it easier for gas companies to drill with less surface disruption.

Yaw said that he’s not convinced the bills are legal.

“I firmly believe in less government involvement and asking the Legislature to rewrite thousands of contracts is not only unconstitutional, but runs contrary to that belief,” Yaw said. “I believe there is a way we can protect those landowners, and not interfere with current contract language.”

But if they are found to be sound, Yaw does not entirely object to them.

Both Yaw and Tice said alternative bills aimed at the conflict between the rights of property owners and the demands of gas companies will be coming down the pipe in the coming weeks.

Those include bills by state Rep. Michele Brooks, R-Crawford County. Brooks already has announced plans to seek a repeal of the portion of Senate Bill 259 targeted by White’s legislation.

She also is working on a bill that would deal with the way gas companies deduct from royalty payments. Specifically, Brooks’ bill would say that if the lease includes no language about deductions, then the gas company cannot take them. The legislation would also spell out exactly what types of costs the gas company can pass along to the property owner.

“My first priority is to protect property rights,” Brooks said. But she believes the state has an obligation to encourage the responsible development of the gas industry.

Yaw is working on legislation that would complement the House bills — by creating protections for property owners who fear retribution from gas companies stemming from questions about deductions.

Yaw said that he’s heard that property owners in many cases won’t challenge gas companies over deductions. The bottom line is: A partial royalty payment is better than no royalty payment.

Yaw said he has been presented with no evidence that gas companies have been walking away from wells because of disputes over royalty deductions. But, the senator said he knows it’s something that property owners fear.

(Email: jfinnerty@cnhi.com)