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
4guaranteed royalties.

5The General Assembly of the Commonwealth of Pennsylvania
6hereby enacts as follows:

7Section 1. Sections 1.2 and 1.3 of the act of July 20, 1979
8(P.L.183, No.60), known as the Oil and Gas Lease Act, added July 
99, 2013 (P.L.473, No.66), are amended to read:

10Section 1.2. Definitions.

11The following words and phrases when used in this act shall
12have the meanings given to them in this section unless the
13context clearly indicates otherwise:

14"Affiliated parties." Parties that are:

15(1) related by blood or marriage;

16(2) engaged in a common business enterprise;

17(3) members of a corporate affiliated group; or

18(4) in a relationship in which one party owns at least a

110% interest in the other party.

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

3"Division order." An agreement signed by an interest owner 
4directing the distribution of proceeds from the sale of oil, 
5gas, casing head gas or other related hydrocarbons. The order 
6shall direct and authorize the payor to make payment for the 
7products taken in accordance with the division order.

8"Interest owner." A person who is legally entitled to
9payment from the proceeds derived from the sale of oil or gas
10from an oil or gas well located in this Commonwealth.

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

12Section 1.3. Royalty guaranteed.

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

20(b) Computation and payment.--

21(1) The lessee shall compute and pay oil and gas
22royalties due under each lease on the gross proceeds received
23by the seller based on the fair market value at the point of
24sale. The following apply:

25(i) Except as set forth in subparagraph (ii), fair 
26market value shall be presumed to be the gross proceeds 
27received pursuant to a good faith contract entered into 
28by nonaffiliated parties of adverse economic interests.

29(ii) If a contract is not negotiated at arm's length 
30or is between affiliated parties, the presumption under
 

1subparagraph (i) shall not apply; and the lessee shall 
2have the burden to establish that royalties paid are 
3based on market value.

4(2) The lessee shall not deduct from royalties any of
5the following:

6(i) A severance tax.

7(ii) An impact fee under 58 Pa.C.S. Ch. 23 (relating
8to unconventional gas well fee).

9(iii) A fee charged by a Commonwealth agency.

10(iv) A postproduction cost. This subparagraph
11includes:

12(A) A loss of produced volume, whether by use as 
13fuel, line loss, flaring, venting or otherwise.

14(B) A cost actually incurred by the lessee from
15the wellhead to the point of sale. This clause
16includes gathering, dehydration, compression,
17treatment, processing, marketing and transportation
18costs incurred in connection with the sale of such
19production.

20Section 2. The addition of section 1.3(b) of the act:

21(1) Shall not apply to a lease agreement entered into
22prior to the effective date of this section.

23(2) Shall apply to a new or modified lease entered into
24on or after the effective date of this section.

25Section 3. This act shall take effect in 60 days.