Sep. 27, 2021
– Rep. Eric Davanzo (R-Westmoreland) has sponsored legislation that would define what natural gas companies can and cannot deduct from landowners. Pennsylvania currently has a Guaranteed Minimum Royalty Act, enacted in 1979, that stipulates that natural gas companies must pay landowners at least one-eighth of the value of the gas harvested from their property. However, industry standards and lack of clarity in the law has led to some landowners receiving less than a one-eighth royalty payment. House Bill 1763
would clarify how royalty payments are calculated.
“This legislation was created in response to the 2010 Kilmer v. Elexco decision,” said Davanzo. “The Kilmers signed an oil and gas lease in 2007 with Elexco. When Kilmer took Elexco to court due to how a royalty was paid, the Supreme Court sided with Elexco, and the Kilmers unfortunately did not get paid the full amount they thought they would.”
Some natural gas companies charged so-called “post-production” costs, which are marketing and transmission charges to get gas to the marketplace. These charges can result in payments below a one-eighth royalty payment. The issue is the Guaranteed Minimum Royalty Act does not define what a royalty is or how it is calculated.
House Bill 1763 would define royalties and determine where those royalty values should be calculated. Many current natural gas contracts do not define royalties either.
“It is crucial to Pennsylvania landowners and industry representatives that the definition of terms used in contracts is precise and just,” Davanzo said. “This legislation will provide assurance that two parties can work together in furtherance of this important industry.”
The bill currently awaits consideration by the House Environmental Resources and Energy industry.