PRINTER'S NO.  1546

  

THE GENERAL ASSEMBLY OF PENNSYLVANIA

  

SENATE BILL

 

No.

1251

Session of

2011

  

  

INTRODUCED BY KASUNIC, COSTA, FONTANA, HUGHES, RAFFERTY, SOLOBAY, WASHINGTON AND YUDICHAK, SEPTEMBER 20, 2011

  

  

REFERRED TO ENVIRONMENTAL RESOURCES AND ENERGY, SEPTEMBER 20, 2011  

  

  

  

AN ACT

  

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Amending the act of July 20, 1979 (P.L.183, No.60), entitled "An

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act regulating the terms and conditions of certain leases

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regarding natural gas and oil," providing for computation of

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oil and gas royalties; and further providing for well

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designations.

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The General Assembly of the Commonwealth of Pennsylvania

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hereby enacts as follows:

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Section 1.  Sections 1 and 2 of the act of July 20, 1979

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(P.L.183, No.60), entitled "An act regulating the terms and

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conditions of certain leases regarding natural gas and oil," are

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amended to read:

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Section 1.  (a)  A lease or other such agreement conveying

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the right to remove or recover oil, natural gas or gas of any

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other designation from lessor to lessee shall not be valid if

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such lease does not guarantee the lessor at least one-eighth

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royalty of all oil, natural gas or gas of other designations

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removed or recovered from the subject real property. The lessee

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shall compute and pay oil and gas royalties due under each lease

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on the gross proceeds received by the seller based on the fair

 


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market value at the point of sale, including amounts collected

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to reimburse the seller for severance taxes and production-

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related costs. The lessee shall not deduct from royalties  

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severance taxes or applicable fees charged by a Commonwealth

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agency or department or post-production costs. Post-production

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costs are:

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(1)  Losses of produced volumes, whether by use as fuel,

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line loss, flaring, venting or otherwise.

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(2)  Costs incurred by the lessee from and after the

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wellhead to the point of sale, including, without limitation,

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gathering, dehydration, compression, treatment, processing,

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marketing and transportation costs incurred in connection

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with the sale of the production.

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(b)  For the purpose of computing and paying royalties, the

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fair market value shall be presumed to be the gross proceeds

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received under a bona fide contract entered into by

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nonaffiliated parties of adverse economic interests. If a

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contract is not negotiated at arm's length or was between

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affiliated parties, the presumption that market value is equal

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to gross proceeds shall not apply and the lessee shall have the

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burden to establish that royalties paid are based on market

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value. Parties are affiliated under this subsection if they are

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related by blood, marriage or common business enterprise, are

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members of a corporate-affiliated group or where one party owns

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a 10% or greater interest in the other.

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(c)  Royalties are due and payable by the lessee on 100% of

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each lease's gross production of oil and gas unless the lease

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explicitly states otherwise. Royalties due shall be paid within

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90 days after the end of the month for gas sales. A 10% monthly

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interest shall accrue on the unpaid balance. If royalties are

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not paid within the required period, the lease may become null

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and void at the discretion of the lessor.

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Section 2.  An oil, natural gas or other designation gas well

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or oil, natural gas or other designation gas lease [which does

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not provide a one-eighth metered royalty shall be subject to

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such an escalation] may be amended or modified when its original

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state is altered by new drilling, deeper drilling, redrilling,

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artificial well stimulation, hydraulic fracturing or any other

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procedure for increased production. A lease shall not be

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affected when the well is altered through routine maintenance or

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cleaning.

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Section 2.  This act shall take effect in 60 days.

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