1Amending the act of July 20, 1979 (P.L.183, No.60), entitled "An
2act regulating the terms and conditions of certain leases
3regarding natural gas and oil," further providing for
4validity of leases and guaranteeing a royalty; adding
5definitions; providing for apportionment; further providing
6for commencement of guaranteed royalty; providing for payment
7information to interest owners and for accumulation of
8proceeds from production; and making editorial changes.

9The General Assembly of the Commonwealth of Pennsylvania
10hereby enacts as follows:

11Section 1. Section 1 of the act of July 20, 1979 (P.L.183,
12No.60), entitled "An act regulating the terms and conditions of
13certain leases regarding natural gas and oil," is repealed:

14[Section 1. A lease or other such agreement conveying the
15right to remove or recover oil, natural gas or gas of any other
16designation from lessor to lessee shall not be valid if such
17lease does not guarantee the lessor at least one-eighth royalty
18of all oil, natural gas or gas of other designations removed or
19recovered from the subject real property.]

1Section 2. The act is amended by adding sections to read:

2Section 1.1. Short title.

3This act shall be known and may be cited as the Oil and Gas
4Lease Act.

5Section 1.2. Definitions.

6The following words and phrases when used in this act shall
7have the meanings given to them in this section unless the
8context clearly indicates otherwise:

9"Check stub." The financial record attached to a check.

10"Division order." An agreement signed by an interest owner
11that:

12(1) Directs the distribution of proceeds from the sale
13of oil, gas, casing head gas or other related hydrocarbons.

14(2) Directs and authorizes the payor to make payment for
15the products taken in accordance with the terms of the
16agreement.

17"Interest owner." A person who is legally entitled to
18payment from the proceeds derived from the sale of oil or gas
19from an oil or gas well located in this Commonwealth.

20"Mcf." A unit of measurement expressed by 1,000 cubic feet.

21"Qualified escrow account." An escrow account administered
22by a noninterested party which must be a financial institution
23licensed by the Department of Banking and Securities of the
24Commonwealth.

25Section 1.3. Royalty guaranteed.

26A lease or other such agreement conveying the right to remove
27or recover oil, natural gas or gas of any other designation from
28the lessor to the lessee shall not be valid if the lease does
29not guarantee the lessor at least one-eighth royalty of all oil,
30natural gas or gas of other designation removed or recovered

1from the subject real property.

2Section 3. Section 2 of the act is amended to read:

3[Section 2.]

4Section 2. Escalation required for alteration to original
5state.

6An oil, natural gas or other designation gas well or oil,
7natural gas or other designation gas lease which does not
8provide a one-eighth metered royalty shall be subject to [such]
9an escalation equal to one-eighth metered royalty when its
10original state is altered by new drilling, deeper drilling,
11redrilling, artificial well stimulation, hydraulic fracturing or
12any other procedure [for increased] to increase production. A
13lease shall not be affected when the well is altered through
14routine maintenance or cleaning.

15Section 4. The act is amended by adding a section to read:

16Section 2.1. Apportionment.

17Where an operator has the right to develop multiple
18contiguous leases separately, the operator may develop those
19leases jointly by horizontal drilling unless expressly
20prohibited by a lease. In determining the royalty where multiple
21contiguous leases are developed, in the absence of an agreement
22by all affected royalty owners, the production shall be
23allocated to each lease in proportion to the amount of
24production the operator reasonably determines to be attributable
25to each lease.

26Section 5. Section 3 of the act is amended to read:

27[Section 3.]

28Section 3. Commencement of guaranteed royalty.

29Whenever [such an increased production] a procedure to 
30increase production has been completed prior to [the effective

1date of this act] September 18, 1979, metering and the [above]
2royalty required under section 1.3 or 2 shall commence [within
390 days after the effective date of this act] not later than 
4December 17, 1979.

5Section 6. The act is amended by adding sections to read:

6Section 3.1. Payment information to interest owners.

7Whenever payment is made for oil or gas production to an
8interest owner, whether pursuant to a division order, lease,
9servitude or other agreement, all of the following information,
10at a minimum, shall be included on the check stub or on an
11attachment to the form of payment, unless the information is
12otherwise provided on a regular basis:

13(1) A name, number or combination of name and number
14that identifies the lease, property, unit or well or wells
15for which payment is being made and the county in which the
16lease, property or well is located.

17(2) Month and year of gas production.

18(3) Total barrels of crude oil or number of Mcf of gas
19or volume of natural gas liquids sold.

20(4) Price received per barrel, Mcf or gallon.

21(5) Total amount of severance and other production taxes
22and other deductions permitted under the division order,
23lease, servitude or other agreement with the exception of
24windfall profit tax.

25(6) Net value of total sales from the property less
26taxes and deductions from paragraph (5).

27(7) Interest owner's interest, expressed as a decimal or
28fraction, in production from paragraph (1).

29(8) Interest owner's share of the total value of sales
30prior to deduction of taxes and deductions from paragraph

1(5).

2(9) Interest owner's share of the sales value less the
3interest owner's share of taxes and deductions from paragraph
4(5).

5(10) Contact information, including an address and
6telephone number.

7Section 3.2. Accumulation of proceeds from production.

8(a) General rule.--Proceeds from production of oil and gas
9may be accumulated and remitted to the persons entitled thereto
10annually for the 12 months' accumulation of proceeds totaling
11less than $100.

12(b) Owner to be paid.--Notwithstanding any other provision
13of this section to the contrary, all accumulated proceeds shall
14be paid to the owner thereof when production ceases or upon
15relinquishment or transfer of the payment responsibility.

16(c) Qualified escrow accounts.--Any escrow account
17established by a lessee to accumulate funds payable to a lessor
18shall be a qualified escrow account. An administrator of a
19qualified escrow account shall deliver to the lessor or, if
20ownership is in dispute, the potential owner an annual statement
21with the same information as if a proceeds check had been
22issued, as well as the rate of interest for the qualified escrow
23account.

24(d) Conflicts.--If there is any conflict between a division
25order and an oil and gas lease, the terms and conditions of the
26oil and gas lease shall control. A division order may not amend
27or supplement the terms and conditions of an oil and gas lease.

28Section 7. Section 4 of the act is amended to read:

29[Section 4.]

30Section 4. Effective date.

1This act shall take effect [in 60 days] September 18, 1979.

2Section 8. The addition of section 1.3 of the act is a
3continuation of former section 1 of the act. Any reference in
4any lease or other such agreement to former section 1 of the act
5shall be deemed to be a reference to section 1.3 of the act.

6Section 9. The amendment, addition or repeal of sections 1,
71.3, 2, 3 and 4 of the act shall apply retroactively to
8September 18, 1979.

9Section 10. This act shall take effect in 60 days.