19790060ua

AN ACT

 

Regulating the terms and conditions of certain leases regarding natural gas and oil.

19790060uc

 

TABLE OF CONTENTS

 

Section 1.  (Repealed).

Section 1.1. Short title.

Section 1.2. Definitions.

Section 1.3. Royalty guaranteed.

Section 2.  Escalation required for alteration to original state.

Section 2.1. Apportionment.

Section 2.2. Cross-unit drilling for unconventional wells.

Section 3.  (No heading).

Section 3.1. Commencement of guaranteed royalty.

Section 3.2. Payment information to royalty owners for oil, natural gas and natural gas liquids from a conventional formation.

Section 3.3. Payment information to royalty owners for oil, natural gas and natural gas liquids from an unconventional formation.

Section 3.4. Conflicts.

Section 20.  Effective date.

19790060u1h

 

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

 

 

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Section 1.  (1 repealed July 9, 2013, P.L.473, No.66)

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Section 1.1.  Short title.

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

(1.1 added July 9, 2013, P.L.473, No.66)

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Section 1.2.  Definitions.

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

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

"Division order."  An agreement signed by a royalty owner directing the distribution of proceeds from the sale of oil, gas, casing head gas or other related hydrocarbons. The order shall direct and authorize the payor to make payment for products taken in accordance with the lease at the royalty owner's share established by the division order. (Def. amended Nov. 3, 2022, P.L.2147, No.153)

"Interest owner."  (Def. deleted by amendment Nov. 3, 2022, P.L.2147, No.153)

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

"Royalty owner."  Any owner of oil or gas in place or oil or gas rights, subject to a lease covering such oil or gas in place or oil or gas rights. The term includes the owner of an interest in an oil or gas lease which entitles him to share in the production of the oil or gas under such lease and the owner of any interest in the oil or gas in place, or oil or gas rights, who has not executed an oil and gas lease, to the extent that the owner is not designated an operator under 58 Pa.C.S. § 3203 (relating to definitions). (Def. added Nov. 3, 2022, P.L.2147, No.153)

(1.2 added July 9, 2013, P.L.473, No.66)

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Section 1.3.  Royalty guaranteed.

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

(1.3 added July 9, 2013, P.L.473, No.66)

19790060u2s

Section 2.  Escalation required for alteration to original state.

An oil, natural gas or other designation gas well or oil, natural gas or other designation gas lease which does not  include a one-eighth metered royalty shall be subject to an escalation equal to one-eighth metered royalty when its original state is altered by new drilling, deeper drilling, redrilling, artificial well stimulation, hydraulic fracturing or any other procedure to increase production. A lease shall not be affected when the well is altered through routine maintenance or cleaning.

(2 amended July 9, 2013, P.L.473, No.66)

19790060u2.1s

Section 2.1.  Apportionment.

Where an operator has the right to develop multiple contiguous leases separately, the operator may develop those leases jointly by horizontal drilling unless expressly prohibited by a lease. In determining the royalty where multiple contiguous leases are developed, in the absence of an agreement by all affected royalty owners, the production shall be allocated to each lease in such proportion as the operator reasonably determines to be attributable to each lease.

(2.1 added July 9, 2013, P.L.473, No.66)

19790060u2.2s

Section 2.2.  Cross-unit drilling for unconventional wells.

(a)  General rule.--If an operator has the right to drill an oil or gas well on separate units, the operator may drill and produce a well that traverses, by horizontal drilling, more than one unit, if:

(1)  The operator reasonably allocates production from the well to or among each unit the operator reasonably determines to be attributable to each unit. The operator may allocate production on an acreage basis for multiple units provided the allocation has a reasonable correlation to the portion of the horizontal well bore in each unit.

(2)  The traversing well is not expressly prohibited by the terms of a lease.

(b)  Location requirement.--The 330-foot location requirement in section 6 of the act of July 25, 1961 (P.L.825, No.359), known as the Oil and Gas Conservation Law, shall not apply to unit lines traversed by a conservation well.

(c)  Construction.--Nothing in this section shall be construed to:

(1)  authorize an operator to drill an oil or gas well that is not subject to a valid lease or royalty agreement; and

(2)  automatically expand or diminish the current surface rights of an operator to include operations related to any existing unit or any well drilled between existing units.

((2.2) added Nov. 7, 2019, P.L.634, No.85)

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Section 3.  Whenever such an increased production procedure has been completed prior to the effective date of this act, metering and the above royalty shall commence within 90 days after the effective date of this act.

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Section 3.1.  Commencement of guaranteed royalty.

Whenever a procedure to increase production has been completed prior to the effective date of this section, metering and the royalty required under section 1.3 or 2 shall commence  after December 17, 1979.

(3.1 added July 9, 2013, P.L.473, No.66)

19790060u3.2s

Section 3.2.  Payment information to royalty owners for oil, natural gas and natural gas liquids from a conventional formation.

Whenever payment is made to a royalty owner for the production of oil, gas or natural gas liquids from a conventional formation, pursuant to an oil and gas lease, all of the following information, at a minimum, shall be included on the check stub provided to the royalty owner or on an attachment to the form of payment provided to the royalty owner, unless the information is otherwise provided on a regular basis:

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

(2)  Month and year of oil, gas or natural gas liquids production for which payment is being made.

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

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

(5)  Total amount of severance and other production taxes and other deductions permitted under the lease, with the exception of windfall profit tax.

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

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

(8)  Royalty owner's share of the total value of sales prior to deduction of taxes and deductions from paragraph (5).

(9)  Royalty owner's share of the sales value less the royalty owner's share of taxes and deductions from paragraph (5).

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

(3.2 amended Nov. 3, 2022, P.L.2147, No.153)

19790060u3.3s

Section 3.3.  Payment information to royalty owners for oil, natural gas and natural gas liquids from an unconventional formation.

(a)  Payment information.--Whenever payment is made to a royalty owner for the production of oil, gas or natural gas liquids from an unconventional formation, pursuant to an oil and gas lease, all of the following information, at a minimum, shall be included on the check stub provided to the royalty owner or on an attachment to the form of payment provided to the royalty owner, unless the information is otherwise provided on a regular basis:

(1)  A common well name and the American Petroleum Institute identification number that identifies the well for which payment is being made.

(2)  Month and year of oil, gas or natural gas liquids production for which payment is being made.

(3)  Total barrels of crude oil or number of Mcf or MMBtu of gas and volume of natural gas liquids produced and sold from each well.

(4)  Price received by the payor per unit of oil, natural gas and natural gas liquids produced and sold.

(5)  The aggregate amounts for each category of deductions for each well incurred by the payor which reduces the royalty owner's payment, including all severance and other production taxes.

(6)  Net and gross value of the payor's total sales from the sale of oil, gas and natural gas liquids from each well less any deductions identified in paragraph (5).

(7)  Royalty owner's legal and contractual interest in the payor's share, expressed as a decimal or fraction.

(8)  Royalty owner's share of the gross value of the payor's total sales for the oil, gas and natural gas liquids before any deductions identified in paragraph (5).

(9)  Royalty owner's share of the sales value less the royalty owner's share of taxes and any deductions identified in paragraph (5).

(10)  Payor's contact information, including an address and telephone number.

(b)  Summary statements.--A payor may make available and provide for a summary statement format for a royalty owner to receive the information under subsection (a) upon the mutual consent of the royalty owner and payor. The summary statement shall conspicuously disclose that the royalty owner has the right to receive the information under subsection (a) in its entirety upon written request, sent by certified mail, to the payor. Upon receipt of a written request under this subsection, the payor shall provide all the information under subsection (a) in its entirety from the month of the notice and each subsequent month thereafter and for any prior period requested by the royalty owner. Nothing in this subsection shall be construed as a waiver of the ability of a royalty owner to receive the information under subsection (a).

(c)  Noncompliance.--If a payor does not provide the payment information to a royalty owner as required under this section, the royalty owner may send a written request for the information to the payor by certified mail. The royalty owner shall identify the lease information under subsection (a)(1) in the written request. If the payor does not provide payment information or does not supply a reason for not providing the payment information within 60 days after receiving the written request, the royalty owner may bring a civil action to enforce the provisions of this section and to recover any resulting attorney fees or court costs incurred in the civil action.

(d)  Transmission of information.--If a royalty owner has already been receiving the payment information required under this act electronically before the effective date of this subsection or upon the mutual written consent of the information payor and the royalty owner, all information required to be included under subsection (a) may be provided or made available to the royalty owner by electronic means, including, but not limited to, electronic mail or a website or database accessible to the royalty owner.

(e)  Remittance of proceeds.--

(1)  Except as provided under subsection (f) or as otherwise provided in the lease, all proceeds due and payable to the royalty owner under the terms of the lease from the sale or production of oil, gas and natural gas liquids shall be remitted in a timely manner as follows:

(i)  no later than 120 days from the date of the first sale of oil, gas or natural gas liquids; and

(ii)  thereafter, within 60 days after the end of the  month when the production is sold.

(2)  A payor shall not be required to comply with paragraph (1) if any of the following apply:

(i)  There is a lack of marketable record title in the royalty owner.

(ii)  There is bona fide dispute concerning the royalty owner's interest.

(iii)  The owner of interest is missing or not able to be located.

(3)  Failure to remit a timely payment of the proceeds as required under paragraph (1) shall result in a mandatory payment of an interest penalty to be set at the legal rate of interest in accordance with section 202 of the act of January 30, 1974 (P.L.13, No.6), referred to as the Loan Interest and Protection Law, until the payment of production proceeds due and payable to the royalty owner under the terms of the lease is made, unless otherwise provided for in the lease.

(f)  Accumulation of proceeds.--Proceeds from the production of oil, gas and natural gas liquids may be accumulated and remitted annually for a 12-month accumulation of proceeds totaling less than $100, unless production permanently ceases or a relinquishment or transfer of the payment responsibility occurs.

(3.3 amended Nov. 3, 2022, P.L.2147, No.153)

19790060u3.4s

Section 3.4.  Conflicts.

If there is any conflict between a division order and an oil and gas lease, the terms and conditions of the oil and gas lease shall control. A division order may not amend or supplement the terms and conditions of an oil and gas lease.

(3.4 added July 9, 2013, P.L.473, No.66)

19790060u20s

Section 20.  Effective date.

This act shall take effect in 60 days.

(4 renumbered and amended July 9, 2013, P.L.473, No.66)