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Thursday, May 26, 2011

Gas Royalty Owners Lament

- Gas Royalty Owners Lament

Thursday, May 26, 2011
Knight Ridder/Tribune Business News
by Laura Legere, The Times-Tribune, Scranton, Pa.

An organization of natural gas royalty owners is frustrated with amendments to a state Senate bill they say has been stripped of provisions to protect landowners if gas companies improperly withhold royalty payments.

In its present form, Senate Bill 460 would standardize the information attached to each royalty check so landowners know how much gas was sold, from which well it was produced, how much was deducted for taxes or costs, and the royalty owner's share of the sale.

An earlier version of the bill went further to outline penalties that could be exercised against gas drillers that withhold royalty payments without proper cause. The penalties included the ultimate punishment: dissolving the gas lease that allows them to drill on a property.

In reporting the bill out of the Senate Environmental Resources and Energy Committee earlier this month, the bill's sponsor, Gene Yaw, R-23, Williamsport, said the bill was amended to remove anything connected to the "controversial" lease dissolution language, which he said was "a bit aggressive."

On Tuesday, he said the amended bill is "what we could get passed. It's as simple as that." "It's not everything I hoped, but it does serve one purpose that I did hope to get done, which is to standardize some of the information that is reported," he said.

Trevor Walczak, the vice president of the state chapter of the National Association of Royalty Owners (NARO) said the bill as originally proposed "gave some acceptable leverage" to mineral owners who he said are often kept "in the dark" by gas companies that should be their partners.

"Unfortunately, after it came out of committee, most of the checks and balances of the bill had been gutted," he said.

State NARO President Jacqueline Root said royalty owners are particularly concerned about a document issued by the gas companies called a division order that details each royalty owner's stake in a producing gas well before the first royalty checks are paid.

Some gas drillers keep the documents simple, she said, while others try to use them to subtract costs or taxes even if a signed gas lease barred those deductions.

Because the companies require the division orders be signed before they pay any royalties, they are "really holding the royalty owner hostage" by changing lease terms in the division order, she said.

"It's not as easy as saying, I won't sign that with that language in it," she said. "The royalty owners could be expecting a check ranging from $1,000 or less to a quarter of a million dollars."

She said the association hopes to work to get the protective language about the division orders reinserted in the bill, even if it means giving up the language about dissolving a lease.

Mr. Yaw said a similar change was discussed "but we couldn't get any agreement to do anything like that at this point. "We wish we could have gotten more," he said, "but this is what we could get to move."

Copyright (c) 2011, The Times-Tribune, Scranton, Pa.

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