PA General Assembly amends statutes governing oil and gas leases

On June 30, the Pennsylvania General Assembly amended statutes that governed oil and gas leases in the Commonwealth. SB 259 recodifies 58 P.S. §33, the so-called “Guaranteed minimum royalty act,” adds requirements for royalty check stub information and provides for well operators to jointly operate leases on multiple contiguous properties. The Pennsylvania Senate passed SB 259 on February 5, 2013, and the House passed the bill with amendments on June 28, 2013. On June 30, the Senate concurred with the amendments and SB 259 was sent to the governor.

The requirement that an owner receive a one-eighth royalty, 58 P.S. §33, on oil and gas extracted under a lease (the “GMRA”) remains unchanged under SB 259. The provision for the escalation of royalties remains unchanged from the current rules of 58 P.S. §34.

The bill requires additional information to be listed on royalty check stubs that owners receive from well operators. In particular, Section 3.2 of SB 259 would require royalty check stubs to include:

• identification information for the lease, property, unit or well(s) for which the royalty is being paid;
• the month and year of production;
• the total volume of oil and gas produced;
• the price per unit of volume (barrel, Mcf or gallon);
• taxes and deductions permitted in the lease, except for windfall profit taxes;
• net value of the total sales less above taxes/deductions;
• interest owner’s interest (decimal or fraction) for production described by the identifying information;
• interest owner’s share of total value prior to taxes/deductions;
• interest owner’s share of sales less interest owner’s share of taxes/deductions;
• And the contact information of the well operator.

If, however, the well operator already has another basis for regularly providing this payment information to landowners, then it need not provide it in the royalty check stubs.

Additionally, where a single operator has the right to develop multiple contiguous properties separately, the operator may develop the leases jointly under Section 2.1, unless the leases expressly prohibit doing so. Previously, well operators were not able to jointly operate leases in Pennsylvania unless joint operation was expressly permitted in the leases, normally through a pooling clause. Section 2.1 now implies the well operator’s right to jointly operate multiple contiguous leases unless expressly prohibited by the language of a lease.

Further, Section 2.1 allows the well operator to calculate the royalty shares of each lease “in such proportion as the operator reasonably determines to be attributable to each lease.”

Lastly, SB 259 Section 3.4 states that division orders, which list the proportion of a landowner’s interest in a group of pooled properties, cannot amend or supplement the terms and conditions of an oil and gas lease. Where the lease and order may conflict, the oil and gas lease is controlling.

For more information on SB 259, please visit the Pennsylvania General Assembly site.

Written by: Garrett Lent, Research Assistant
Agricultural Law Resource and Reference Center
July 2013