Shale Law in the Spotlight: Pennsylvania Senate Passes Proposed Oil and Gas Lease Protection Package

Written by Chloe Marie – Research Fellow

By unanimous votes on January 30, 2017, the Pennsylvania Senate passed two bills that have been collectively referred to as the Oil and Gas Lease Protection Package.  This legislation was introduced on January 19, 2017, by Senator Gene Yaw and was referred to the Senate Environmental Resources & Energy Committee. The two bills would provide protections to royalty interest owners by amending the Oil and Gas Lease Act to allow royalty interest owners to inspect the records of oil and gas companies for the purpose of verifying royalty payments (Senate Bill 138); and by enacting the Natural Gas Lease Anti-Retaliation Act to prohibit retaliatory actions from oil and gas companies against royalty interest owners who challenge the accuracy of their royalty payments (Senate Bill 139). In a co-sponsorship memorandum to all Senate members dated December 2016, Senator Yaw explained that these bills are aimed at “support[ing] leaseholders who seek more transparency and protection while engaging the gas industry on their lease agreements.”

Senate Bill 138 would amend existing sections of the Oil and Gas Lease Act as well as adding new sections to this Act addressing the inspection of records and joint ventures. Under the bill, leaseholders would be allowed, upon written request, to inspect all relevant records and documentation of the oil and gas company to verify the accuracy of the royalty. The oil and gas company would have an obligation to designate a reasonable location, date and time for inspection of records as well as a knowledgeable agent necessary to answer potential specific questions, and this, within 30 days of the receipt of the request. The legislation specifies that such request cannot be made more than once per year. Additionally, when a well is operated by a joint venture, the bill would mandate the disclosure of certain information to interest owners on an annual basis. Finally, section 3.3 of the Act (58 P.S. § 35.3) would be amended to require that the payment of royalties be made within 90 days of production unless otherwise provided by contract. Where royalties total less than $100, payment could be made quarterly under the legislation rather than annually as provided by current law. 

As for the Senate Bill 139, it specifically addresses leaseholder protection and forbids retaliation against lessors who have filed a good faith complaint relating to the accuracy of their royalty payments. Precisely, the bill states that “a lessee may not retaliate by ceasing development or production or take other reprisals against a lessor because the lessor takes a good faith action.” Furthermore, it defines “good faith action” as “a claim, demand or complaint intended to secure rights granted under a lease or to determine whether the terms of a lease are being complied with, including, but not limited to, a request for an accounting of any costs, taxes or fees allowed to be deducted from royalty payments by the lessee, that is made without malice or ulterior motive and which the lessor or a party acting on the lessor’s behalf reasonably believes to be valid and legally correct.”

The introduction of the current Oil and Gas Lease Protection Package is not the first time that Senator Yaw has introduced such a package.  Indeed, on April 7, 2014, the Pennsylvania Senate passed SB 1236, 1237, and 1238 – three bills drawn up to protect landowners who entered into oil and gas leases. While these three bills did not advance through the Pennsylvania House of Representatives, a related bill – Recording of Surrender Documents from Oil and Natural Gas Act – was enacted as Act 152 of 2014 on October 22, 2014.  In the subsequent legislative session, Senate Bills 147 and 148 were passed unanimously by the Pennsylvania Senate on January 28, 2015, but again did not advance through the House. Both bills in the current Oil and Gas Lease Protection Package were referred to the House Environmental Resources & Energy Committee on February 2, 2017, where they remain. Stay tuned for any further legislative developments!