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!
