PRINTER'S NO. 1995
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No.
1391
Session of
2015
INTRODUCED BY EVERETT, BAKER, MAJOR, PICKETT, BOBACK, MILLARD,
BARRAR, McNEILL, HELM, MOUL, D. COSTA, METZGAR, DIAMOND,
JAMES, WATSON, VITALI, O'NEILL, D. PARKER, QUINN, MURT,
REGAN, R. BROWN, ELLIS, WHEELAND, GODSHALL, GABLER, HARPER,
TALLMAN, REESE, RADER, FARRY, M. K. KELLER, PEIFER, MASSER,
KAUFFMAN, HEFFLEY, STAATS, MUSTIO, TOPPER AND DAVIS,
JUNE 29, 2015
REFERRED TO COMMITTEE ON ENVIRONMENTAL RESOURCES AND ENERGY,
JUNE 29, 2015
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
definitions; providing for minimum royalty payment for
unconventional gas well production; further providing for
apportionment; and providing for remedy for failure to pay
the minimum royalty on unconventional gas wells.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Section 1.2 of the act of July 20, 1979 (P.L.183,
No.60), known as the Oil and Gas Lease Act, added July 9, 2013
(P.L.473, No.66), is amended to read:
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.
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"Division order." An agreement signed by an interest 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 the
products taken in accordance with the division order.
"Interest owner." A person or entity who is legally entitled
to payment from the proceeds derived from the sale of oil or gas
from an oil or gas well located in this Commonwealth.
"Lessee." An operator.
"Lessor." An interest owner.
"Mcf." A unit of measurement expressed by 1,000 cubic feet.
"Operator." A person or entity granted the right pursuant to
a lease or other such agreement by an interest owner or lessor
to develop oil, natural gas or gas of any other designation
existing below a specific tract of real property.
"Production unit." A defined area of land comprised of all
or defined portions of a number of adjoining properties where
royalty interests are joined into a single unit for operation
and development of unconventional gas wells and where royalty
payments are divided among the royalty owners according to a
division order or unitization agreement. In the absence of an
agreement by all interest owners in a production unit, the
royalty payment to each interest owner in a unit shall be
calculated based on the percentage of acreage of each owner in
the unit.
"Royalty." A lessor's ownership interest in the oil, natural
gas or gas of any other designation existing below a specific
tract of real property.
"Royalty payment." A payment made by a lessee to a lessor in
accordance with a lease or other such agreement conveying the
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right to remove or recover oil, natural gas or gas of any other
designation.
"Unconventional formation." A geological shale formation
existing below the base of the Elk Sandstone or its geologic
equivalent stratigraphic interval where natural gas or gas of
other designations generally cannot be produced at economic flow
rates or in economic volumes except by vertical or horizontal
well bores stimulated by hydraulic fracture treatments or by
using multilateral well bores or other techniques to expose more
of the formation to the well bore.
"Unconventional gas well." A bore hole drilled or being
drilled for the purpose of or to be used for the production of
natural gas or gas of other designations from an unconventional
formation.
Section 2. The act is amended by adding a section to read:
Section 1.4. Minimum royalty payment for unconventional gas
well production.
The minimum royalty payment to a lessor for unconventional
gas well production shall not be less than one-eighth of the
lessor's percentage ownership in the production from the
production unit calculated on the total price received by the
operator for the production in an arm's-length transaction. No
deductions of any costs shall result in a royalty payment less
than the one-eighth as provided in this section. The requirement
for a minimum royalty payment shall apply to all existing and
future leases for unconventional gas well production and shall
commence upon the effective date of this section.
Section 3. Section 2.1 of the act, added July 9, 2013
(P.L.473, No.66), is amended to read:
Section 2.1. Apportionment.
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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] based on
the percentage of acreage of each lease within the production
unit.
Section 4. The act is amended by adding a section to read:
Section 4. Remedy for failure to pay the minimum royalty on
unconventional gas wells.
(a) Civil action and venue.--A lessor who is party to a
lease for an unconventional gas well may file an action for
failure to pay the minimum royalty under this act in the court
of common pleas of the county where the unconventional gas well
is located or the county in this Commonwealth in which the
lessor resides.
(b) Burden of proof.--Demonstration by a lessor who is party
to a lease for an unconventional gas well that the lessee has
made a royalty payment which is less than the value of one-
eighth royalty of all oil, natural gas or gas of any other
designation removed or recovered from the subject real property
sold at an arm's-length transaction shall create a presumption
that a violation of this act has occurred. This presumption may
be rebutted by the lessee with clear and convincing evidence
that the minimum royalty was paid.
(c) Effect of notice and failure to cure.--In any action in
which a court finds that the lessee who is party to a lease for
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an unconventional gas well has violated the terms of this act by
making a royalty payment which is less than the amount required
by this act, the lessor shall be entitled to the remedies
specified in subsections (d) and (e) if, before filing suit, the
lessor gave to the lessee 60 days' written notice by certified
mail of the deficiency and the lessee failed to cure it.
(d) Additional remedies.--In addition to actual damages and
any other remedy deemed appropriate by the court, the court
shall award reasonable attorney fees and costs in bringing the
action, including expert witness fees, to the lessor.
(e) Treble damages.--In cases where the court finds that the
lessee acted willfully in failing to pay the minimum royalty or
where a lessee has been previously found to have failed to pay
the minimum royalty, the court may award treble damages.
(f) Other remedies not precluded.--The remedies provided in
this section are not exclusive of, do not require exhaustion of
and shall be in addition to any other remedies provided by the
lease, by law or in equity.
Section 5. This act shall take effect in 60 days.
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