Senate Environmental Committee holds hearing on royalty issues

On June 27, 2013, Pennsylvania Senate Environmental Resources and Energy Committee held a hearing about royalty transparency and the calculation of post-production costs in Pennsylvania oil and gas leases. Further, the question of what costs incurred by operators are categorized as post-production was discussed at the hearing.

The committee hearing centered on testimony from county commissioners from Bradford County, the Pennsylvania Farm Bureau and National Association of Royalty Owners, as well as industry and legal representatives involved in the Marcellus play. The discussion focused on the accessibility of information on cost-deductions to landowners and how the state should regulate the calculation of cost deductions by producers.

While current legislation requires an 1/8^th royalty on all gas extracted be paid to landowners by gas companies leasing the land (Guaranteed Minimum Royalty Act), and the State Supreme Court has held that post-production costs can be factored into the calculation of the royalty (Kilmer v. Elexco), gas companies are not currently required to show how the periodic royalty paid to a landowner is calculated. Proposed legislation would update the required information on pay stubs to landowners (SB 259 and HB 1414).

For more information on the discussion, visit Sen. Yaw’s website for the committee hearing recording, transcripts, and a news release detailing the discussion.

Written by: Garrett Lent, Research Assistant

Agricultural Law Resource and Reference Center

June 2013