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| THE GENERAL ASSEMBLY OF PENNSYLVANIA |
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| SENATE BILL |
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| INTRODUCED BY KASUNIC, COSTA, FONTANA, HUGHES, RAFFERTY, SOLOBAY, WASHINGTON AND YUDICHAK, SEPTEMBER 20, 2011 |
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| REFERRED TO ENVIRONMENTAL RESOURCES AND ENERGY, SEPTEMBER 20, 2011 |
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| AN ACT |
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1 | Amending the act of July 20, 1979 (P.L.183, No.60), entitled "An |
2 | act regulating the terms and conditions of certain leases |
3 | regarding natural gas and oil," providing for computation of |
4 | oil and gas royalties; and further providing for well |
5 | designations. |
6 | The General Assembly of the Commonwealth of Pennsylvania |
7 | hereby enacts as follows: |
8 | Section 1. Sections 1 and 2 of the act of July 20, 1979 |
9 | (P.L.183, No.60), entitled "An act regulating the terms and |
10 | conditions of certain leases regarding natural gas and oil," are |
11 | amended to read: |
12 | Section 1. (a) A lease or other such agreement conveying |
13 | the right to remove or recover oil, natural gas or gas of any |
14 | other designation from lessor to lessee shall not be valid if |
15 | such lease does not guarantee the lessor at least one-eighth |
16 | royalty of all oil, natural gas or gas of other designations |
17 | removed or recovered from the subject real property. The lessee |
18 | shall compute and pay oil and gas royalties due under each lease |
19 | on the gross proceeds received by the seller based on the fair |
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1 | market value at the point of sale, including amounts collected |
2 | to reimburse the seller for severance taxes and production- |
3 | related costs. The lessee shall not deduct from royalties |
4 | severance taxes or applicable fees charged by a Commonwealth |
5 | agency or department or post-production costs. Post-production |
6 | costs are: |
7 | (1) Losses of produced volumes, whether by use as fuel, |
8 | line loss, flaring, venting or otherwise. |
9 | (2) Costs incurred by the lessee from and after the |
10 | wellhead to the point of sale, including, without limitation, |
11 | gathering, dehydration, compression, treatment, processing, |
12 | marketing and transportation costs incurred in connection |
13 | with the sale of the production. |
14 | (b) For the purpose of computing and paying royalties, the |
15 | fair market value shall be presumed to be the gross proceeds |
16 | received under a bona fide contract entered into by |
17 | nonaffiliated parties of adverse economic interests. If a |
18 | contract is not negotiated at arm's length or was between |
19 | affiliated parties, the presumption that market value is equal |
20 | to gross proceeds shall not apply and the lessee shall have the |
21 | burden to establish that royalties paid are based on market |
22 | value. Parties are affiliated under this subsection if they are |
23 | related by blood, marriage or common business enterprise, are |
24 | members of a corporate-affiliated group or where one party owns |
25 | a 10% or greater interest in the other. |
26 | (c) Royalties are due and payable by the lessee on 100% of |
27 | each lease's gross production of oil and gas unless the lease |
28 | explicitly states otherwise. Royalties due shall be paid within |
29 | 90 days after the end of the month for gas sales. A 10% monthly |
30 | interest shall accrue on the unpaid balance. If royalties are |
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1 | not paid within the required period, the lease may become null |
2 | and void at the discretion of the lessor. |
3 | Section 2. An oil, natural gas or other designation gas well |
4 | or oil, natural gas or other designation gas lease [which does |
5 | not provide a one-eighth metered royalty shall be subject to |
6 | such an escalation] may be amended or modified when its original |
7 | state is altered by new drilling, deeper drilling, redrilling, |
8 | artificial well stimulation, hydraulic fracturing or any other |
9 | procedure for increased production. A lease shall not be |
10 | affected when the well is altered through routine maintenance or |
11 | cleaning. |
12 | Section 2. This act shall take effect in 60 days. |
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