On June 23, 2015, Representatives Garth Everett (R-Lycoming), Sandra Major (R-Susquehanna/Wayne), Matt Baker (R-Bradford/Potter/Tioga), Tina Pickett (R-Bradford/Sullivan/Susquehanna) and Karen Boback (R-Lackawanna/ Luzerne/Wyoming) re-introduced legislation which seeks to clarify and strengthen Pennsylvania’s Guaranteed Minimum Royalty Act (“GMRA”). The GMRA states that a lease for oil and gas shall guarantee a minimum royalty of 12.5%. However, many producers in the Marcellus region have been deducting post-production costs, such as transportation, compression and dehydration charges, when calculating landowner royalties. These deductions often result in a net royalty which is less than the statutory minimum of 12.5%. The bill, known as HB 1391, will prevent this practice. Section 1.4 of the bill states that “[T]he minimum royalty payment to a lessor for unconventional gas well production shall not be less than one-eighth…” The bill further provides that if a landowner is successful in establishing a violation of the GMRA, the reviewing court “shall award reasonable attorney’s fees” to the landowner.
Similar legislation known as HB 1684 was introduced last year by Rep. Everett but that version did not get a full floor vote. Bob Burnett’s article, “Pa. Should Clarify Its Approach to Post-Production Costs” published in the Pennsylvania Law Weekly on June 17, 2014 urged adoption of HB 1684. The logic and rationale espoused in this article also applies to HB 1391. Every landowner and royalty owner in Pennsylvania should closely monitor and follow the status of this critical legislation.
