THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

INTRODUCED BY GEORGE, CALTAGIRONE, CARROLL, D. COSTA, FABRIZIO, FREEMAN, GOODMAN, HESS, HORNAMAN, JOSEPHS, KIRKLAND, KORTZ, KULA, MAHONEY, MARSHALL, MUNDY, MURPHY, READSHAW, STURLA AND WAGNER, APRIL 28, 2011

REFERRED TO COMMITTEE ON ENVIRONMENTAL RESOURCES AND ENERGY, APRIL 28, 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," further providing for

guarantee of minimum royalties and for escalation of

royalties.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  Sections 1 and 2 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," are

amended to read:

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.] (a)  A lease or such

other 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 the lease or other agreement does

not guarantee the lessor at least a 15% royalty of all oil,

natural gas or gas of other designations removed or recovered

from the subject of real property. The lessee shall compute and

pay oil and gas royalties due under each lease on the gross

proceeds received by the seller based on the fair market value

at the point of sale, including amounts collected to reimburse

the seller for severance taxes and production-related costs. The

lessee shall not deduct from royalties any severance taxes or

applicable fees charged by any Commonwealth agency or

department, or any post-production costs. Post-production costs

are:

(1)  All losses of produced volumes, whether by use as fuel,

line loss, flaring, venting or otherwise.

(2)  All costs actually incurred by the lessee from and after

the wellhead to the point of sale, including, without

limitation, all gathering, dehydration, compression, treatment,

processing, marketing and transportation costs incurred in

connection with the sale of such production.

(b)    For the purpose of computing and paying royalties, the

fair market value shall be presumed to be the gross proceeds

received pursuant to a bona fide contract entered into by

nonaffiliated parties of adverse economic interests. If a

contract is not negotiated at arm's length or was between

affiliated parties, the presumption that market value is equal

to gross proceeds shall not apply and the lessee shall have the

burden to establish that royalties paid are based on market

value. Parties are affiliated under this subsection if they are

related by blood, marriage or common business enterprise, are

members of a corporate affiliated group or where one party owns

a 10% or greater interest in the other.

(c)  Royalties are due and payable by the lessee on 100% of

each lease's gross production of oil and gas unless the lease

explicitly states otherwise. Royalties due must be paid within

90 days after the end of the month for gas sales. A 10% monthly

interest shall accrue on the unpaid balance. If royalties are

not paid within the required period, the lease may become null

and void at the discretion of the lessor.

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] may be amended or modified 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.  This act shall take effect in 60 days.