Attorney Doug Calls out Pennsylvania politicians and specifically Pennsylvania’s legislative bodies regarding lack of effective and meaningful oil and gas legislation that benefits property owners and oil and gas right royalty owners in the development of natural gas. Doug gets animated in his discussion challenging politicians to pass meaningful laws that benefit Pennsylvania residents and royalty owners as opposed to repeated legislation that benefits oil, gas and pipeline companies. Politicians have a history of promoting potential legislation in favor of property and royalty owners, but they seem to only to pass legislation heavily favoring the oil and gas industry. Doug voices his extreme frustration with the lack of legislative action to benefit royalty owners. He questions the basis for recent legislation that promotes drilling Marcellus and Utica multi-unit well and cross-unit wells which was heavily lobbied for and supported by drilling companies.
Doug discusses and explains Senate Bill 59 which passed in 2013 and gives drilling companies the power to pool and unitize leases that originally did not authorize such activity. Senate Bill 259 was shocking approved by the state Senate in a 49 to 0 vote. Thereafter, it passed Pennsylvania’s state house with only 33 members opposing the “force pooling” bill. On July 9, 2013, Governor Corbett signed Senate Bill 59 into law much to the detriment of western Pennsylvania royalty owners. This senate bill has the effect of granting gas companies the power to pool and unitize gas leases and properties to form large royalty production units for the extraction of natural gas. Attorney Clark believes this bill was devastating to western Pennsylvania landowners and royalty owners were older oil and gas leases were specifically negotiated not to preclude unitization and pooling. The originally negotiated oil and gas leases that did not authorize pooling and unitization of neighboring properties typically provided very low per-acre bonus payments, often only at $5 or $10 per acre leased, and virtually all of these older gas leases were at the state guaranteed minimum royalty of 12.5% and allowed full deductions of post-production costs, including pipeline gathering, transporting, compression, dehydration, marketing and other common deductions.
This oil and gas law gutted landowner’s ability to negotiate for per-acre bonuses, higher royalty percentages, and their ability to negotiate to eliminate post-production cost deductions from their royalty payments. Senate Bill 259 also gave drilling companies the ability to construct large acre well site pads, including water impoundment ponds for fracking operations, for the horizontal development of the Marcellus and Utica shell formations. In sum, this legislation allows gas companies to force pooling on landowners who never agreed to have their property included in production units with neighboring lands. Attorney Clark believes that this legislation passed as a result of gas companies’ lobbying efforts and campaign contributions to politicians as opposed to passing to benefit Pennsylvania property owners. After this legislation passed, landowners were not able to negotiate oil and gas lease amendments, modifications and ratifications for a new per-acre bonuses and higher royalty percentages when their leases did not include pooling and unitization provisions. Doug believes that this legislation will cost western Pennsylvania landowners and royalties owners tens of millions of dollars and ultimately hundreds of millions of dollars as royalties are paid out into the future at lower percentages and full post-production pipeline cost deductions. It makes sense that gas companies would lobby and push for such legislation which completely benefits them and eliminates the landowner’s negotiation leverage. Doug expresses his frustration where politicians preach that they are fighting for landowners to pass legislation that will eliminate or reduce post-production pipeline deductions, but nothing is ever passed. Instead, they appear to repeatedly pass legislation benefiting oil and gas drilling companies to the detriment of Pennsylvania’s royalty owners.
Doug also reviews a section of Act 85 of 2019 relating to authorization of multi-unit or cross-unit wells. Doug believes this is another great example of Pennsylvania’s politicians often appear to support the gas industry to the detriment of the landowner and royalty owners. As a result of Act 85, gas companies are generally allowed to drill multi-unit and cross-unit wells which when drilled horizontally travel through multiple gas production units to extract gas from the entire length of the wellbore. Prior to the passage of this legislation, Attorney Clark was able to negotiate Multi-Unit Well Consent Agreements with drilling companies to allow multi-unit and cross-unit wells. These negotiations proved to be extremely valuable for many royalty owners across Pennsylvania. As it appeared companies could not drill multi-unit or cross-unit wells without landowners’ consent, many companies were forced to negotiate terms of consent which could possibly result in cash payments or royalty payment modifications. Once again, Doug believes oil and gas companies lobbied Pennsylvania’s legislature and contributed to politicians in order to promote legislation allowing multi-unit and cross-unit wells without seeking landowners consent. Gas companies would much rather have a legislation enacted to authorize this type of drilling activity than negotiate and compensate landowners for cross-unit drilling. Once again, Doug believes some politicians may have increased their campaign coffers while passing legislation benefiting energy companies to the detriment of Pennsylvania royalty owners.
Attorney Clark voices his frustration in reviewing the recent history of Pennsylvania oil and gas legislation since the Marcellus and the Utica shale boom, and he believes that all meaningful legislation works heavily in favor of oil, gas and pipeline companies. Doug believes landowners must consider this history when voting and should question their state representatives and senators as to why they have supported and voted for legislation benefiting gas companies and not the residents of our Commonwealth.
If politicians truly want to benefit their constituents, they should pass royalty legislation that precludes post-production cost deductions prior to the interstate pipeline. They should also pass legislation that precludes the use of index pricing to set the value of gas when drilling companies sell your gas to their affiliated marketing companies. Doug believes it is time that politicians start closing loopholes in favor of oil and gas companies and draft and pass legislation benefiting royalty owners.