THE GENERAL ASSEMBLY OF PENNSYLVANIA

SENATE BILL

INTRODUCED BY YAW, BAKER, D. WHITE, RAFFERTY, WAUGH, COSTA, FONTANA, WOZNIAK AND KASUNIC, FEBRUARY 11, 2011

REFERRED TO ENVIRONMENTAL RESOURCES AND ENERGY, FEBRUARY 11, 2011  

AN ACT

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

act regulating the terms and conditions of certain leases

regarding natural gas and oil," adding definitions; providing

for payment information to interest owners for accumulation

of proceeds from production, for nonpayment of royalties and

for effects of nonpayment; and making editorial changes.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  Section 1 of the act of July 20, 1979 (P.L.183,

No.60), entitled "An act regulating the terms and conditions of

certain leases regarding natural gas and oil," is repealed:

[Section 1.  A lease or other such agreement conveying the

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

designation from lessor to lessee shall not be valid if such

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.]

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

Section 1.1.  Short title.

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

Lease Act.

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."  A contract of sale to the purchaser of oil

or gas directing the purchaser to make payment for the value of

the products taken in the proportions set out in the contract

and which contract is prepared by the purchaser on the basis of

the ownership shown in the title opinion prepared after

examination of the abstracts and which is executed by the

operator, the royalty owner and the other persons having an

interest in the production.

"Interest owner."  A person owning a royalty interest or a

working interest in an oil or gas well or unit.

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

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.

Section 3.  Sections 2 and 3 of the act are amended to read:

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

well or oil, natural gas or other designation gas lease which

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

to such an escalation when its original state is altered by new

drilling, deeper drilling, redrilling, artificial well

stimulation, hydraulic fracturing or any other procedure for

increased production. A lease shall not be affected when the

well is altered through routine maintenance or cleaning.]

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

provide a one-eighth metered royalty shall be subject to such an

escalation when its original state is altered by new drilling,

deeper drilling, redrilling, artificial well stimulation,

hydraulic fracturing or any other procedure for increased

production. A lease shall not be affected when the well is

altered through routine maintenance or cleaning.

[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.]

Section 3.  Commencement of guaranteed royalty.

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.

Section 4.  The act is amended by adding sections to read:

Section 3.1.  Payment information to interest owners.

Whenever payment is made for oil or gas production to an

interest owner, whether pursuant to a division order, lease,

servitude or other agreement, all of the following information

shall be included on the check stub or on an attachment to the

form of payment, unless the information is otherwise provided on

a regular basis:

(1)  Lease identification number, if any, or reference to

appropriate agreement with identification of the well or unit

from which production is attributed.

(2)  Month and year of sales or purchase included in the

payment.

(3)  Total barrels of crude oil or number of Mcf of gas

purchased.

(4)  Owner's final realizable price per barrel or Mcf.

(5)  Total amount of severance and other production

taxes, with the exception of windfall profit tax.

(6)  Net value of total sales from the property after

taxes are deducted.

(7)  Interest owner's interest, expressed as a decimal

fraction, in production from paragraph (1).

(8)  Interest owner's share of the total value of sales

prior to any tax deduction.

(9)  Interest owner's share of the sales value less the

interest owner's share of the production and severance taxes,

as applicable.

Section 3.2.  Accumulation of proceeds from production.

(a)  General rule.--Unless otherwise requested, proceeds from

production of oil and gas may be accumulated and remitted to the

persons entitled thereto annually for the 12 months'

accumulation of proceeds totaling less than $100.

(b)  Smaller amounts.--

(1)  Proceeds totaling $100 or less, but $25 or more

shall be remitted monthly, if requested in writing by the

person entitled to the proceeds.

(2)  Amounts less than $10 shall be remitted annually if

requested in writing by the person entitled to the proceeds.

(c)  Notice required.--Before proceeds may be accumulated,

the payor shall provide notice to the person entitled to the

proceeds that there is an option to be paid monthly when the

accumulated proceeds exceed $10. The notice to the person shall

also provide directions for requesting monthly payment and shall

constitute notice to all heirs, successors, representatives and

assigns of the person.

(d)  Owner to be paid.--Notwithstanding any other provision

of this section to the contrary, all accumulated proceeds shall

be paid to the owner thereof when production ceases or upon

relinquishment or transfer of the payment responsibility.

Section 3.3.  Nonpayment of royalties and notice prerequisite to

judicial demand.

If a mineral lessor seeks relief for the failure of the

lessee to make timely or proper payment of royalties, the

mineral lessor must give the lessee written notice of the

failure as a prerequisite to a judicial demand for damages or

dissolution of the lease.

Section 3.4.  Required response of lessee to notice.

The lessee shall have 30 days after receipt of the required

notice within which to pay the royalties due or to respond by

stating in writing a reasonable cause for nonpayment. The

payment or nonpayment of the royalties or stating or failing to

state a reasonable cause for nonpayment within this period shall

be subject to the remedies of dissolution and damages provided

in this act.

Section 3.5.  Division orders, precedence of lease and penalties

for failure to pay royalties due.

(a)  General rule.--A division order may not alter or amend

the terms of the oil and gas lease. A division order that varies

the terms of the oil and gas lease is invalid to the extent of

the variance, and the terms of the oil and gas lease take

precedence.

(b)  Effect.--The execution of a division order is not a

condition precedent to receiving payment from a lessee. The

lessee may not withhold royalty payments because the lessor has

not executed a division order.

(c)  Penalty.--

(1)  If the lessee fails to pay royalties solely because

the lessor has not executed a division order, the court shall

award as damages double the amount of royalties due, legal

interest on that sum from the date due and reasonable

attorney fees.

(2)  If the lessor fails to supply the name, address and

tax identification number upon written request of the lessee,

the lessee's failure to pay royalties shall be deemed

reasonable.

Section 3.6.  Effect of payment in response to notice.

(a)  General rule.--If the lessee pays the royalties due in

response to the required notice, the remedy of dissolution shall

be unavailable unless it is found that the original failure to

pay was fraudulent.

(b)  Amount of recovery.--

(1)  The court may award as damages double the amount of

royalties due, interest on that sum from the date due and

reasonable attorney fees, provided the original failure to

pay royalties was either fraudulent or willful and without

reasonable grounds.

(2)  In all other cases, including, but not limited to,

mere oversight or neglect, damages shall be limited to

interest on the royalties computed from the date due and a

reasonable attorney fee if such interest is not paid within

30 days of written demand therefor.

Section 3.7.  Effect of nonpayment in response to notice or

failure to state cause.

If the lessee fails to pay royalties due or fails to inform

the lessor of a reasonable cause for failure to pay in response

to the required notice, the court may:

(1)  award as damages double the amount of royalties due,

interest on that sum from the date due and reasonable

attorney fees regardless of the cause for the original

failure to pay royalties; and

(2)  dissolve the lease.

Section 3.8.  Dissolution not a favored remedy.

In a case where notice of failure to pay royalties is

required, dissolution should be granted only if the conduct of

the lessee, either in failing to pay originally or in failing to

pay in response to the required notice, is such that the remedy

of damages is inadequate to do justice.

Section 3.9.  Dissolution may be partial or entire.

A mineral lease may be dissolved partially or in its

entirety. A decree of partial dissolution may be made applicable

to a specified portion of land, to a particular stratum or

strata or to a particular mineral or minerals.

Section 5.  Section 4 of the act is amended to read:

[Section 4.  This act shall take effect in 60 days.]

Section 4.  Effective date.

This act shall take effect in 60 days.

Section 6.  This act shall take effect in 60 days.