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House of Representatives
Session of 2015 - 2016 Regular Session


Posted: February 26, 2015 11:01 AM
From: Representative Garth D. Everett and Rep. Matthew E. Baker, Rep. Sandra Major, Rep. Tina Pickett
To: All House members
Subject: Guaranteed Minimum Royalty Act (Act 60 of 1979)
I plan to reintroduce legislation, similar in purpose to HB 1684 of last session, which will ensure that PA landowners are paid the minimum royalty payment for natural gas as prescribed in current PA law.

Our Guaranteed Minimum Royalty Act (Act 60 of 1979) simply states that a lease for oil or natural gas shall guarantee a minimum one-eighth (12.5%) royalty. The development of unconventional shale gas wells (i.e. Marcellus) in the Commonwealth has been accompanied by an effort by some companies to reduce royalties below this statutory minimum by deducting what are known as post-production costs from the royalty payments to landowners. These post-production costs can include compression, dehydration, transmission and other costs incurred between the wellhead and a final market point of sale. When these expenses are deducted, final royalty payments often are below the statutory one-eighth.

In 2010, when the Pennsylvania Supreme Court considered this issue in Kilmer v. Elexco Land Services, Inc., it determined that the current statute did not address the deduction of post-production costs and stated that the “General Assembly is the branch of government best suited to weigh the public policies underlying the determination of the proper point of royalty valuation.”

When PA landowners signed leases for a percentage of the value of the gas produced from their property, they were assured by the gas companies that they would receive no less than the statutory one-eighth – not something significantly less than that because of deductions.

Therefore, in the near future, Representatives Baker, Major, Pickett and I will introduce legislation to clarify that the deduction of post-production costs from unconventional gas well production may not result in royalty payments less than the guaranteed minimum. Please join us in ensuring that PA landowners are paid their fair share of the proceeds from their gas by cosponsoring this legislation.

Please contact Chanin Zwing with any questions at 787-5270 or via e-mail at czwing@pahousegop.com.

Introduced as HB1391