MDN has written plenty about Pennsylvania’s HB 1684–the Guaranteed Minimum Royalty Act (see these MDN articles). In essence, some companies (cough *Chesapeake Energy* cough) have gotten creative with deducting post-production costs from royalty checks. According to the PA Guaranteed Minimum Royalty Act of 1979, royalty owners (landowners) must receive no less than 1/8, or 12.5%, by law. But when Chessy and others start deducting this and that, never spelled out in the original lease agreement, landowners are getting the shaft–way lower than 12.5%. In some cases they get royalty checks for a few dollars! Bradford County landowner John Williams is concerned, both about HB 1684 and newly elected Gov. Tom Wolf’s stand on that bill, and about Wolf’s proposed 5% severance tax. Will the severance tax be the next deduction gas companies take, further reducing royalty checks? Is the severance tax Tom Wolf proposes a tax that will be paid, in essence, by landowners? We thank John for his guest post…
By John Williams, Bradford County landowner
The people have spoken. Tom Wolf has just been inaugurated as Governor of Pennsylvania. During his campaign, candidate Wolf pledged many promises for Pennsylvania. Some of Wolf’s promises include: an increase in the minimum wage, increased funding for public schools, protection of public employee pensions, and other unattainable things. It seems that Wolf may think all this will become attainable by imposing a severance tax on natural gas production.
Before Wolf decides on where he will get the funds to do all of the things he has pledged (i.e. a severance tax), I hope he will not forget about the Marcellus Shale landowners of this state that leased their lands to make all of this current prosperity possible. Many leased landowners voted for him!
I am a resident of Bradford County, Pa., which is the highest-producing natural gas county in Pennsylvania. For several years we’ve been been in a struggle against unfair post-production costs deducted from our royalty checks. By now, Gov. Wolf should know what House Bill (HB) 1684 is all about: Guaranteeing landowners their Pennsylvania state constitution guaranteed minimum royalty percentage of 12.5%. There have been other bills put forward to help landowners with royalty issues (see Senate Bills 1236-1237-1238), but if landowners have to exercise the provisions in any of those bills, they will likely need to hire a lawyer to do so.
HB 1684 is the bill that Wolf needs to stand behind. HB 1684 will protect landowners from outrageous and fraudulent post-production costs. Politicians and gas companies who don’t support the bill say it would be unconstitutional. The leases we signed were leases the gas companies themselves brought to us, with terms they wanted. Those same gas companies are now breaking their own terms. Many leases, starting in 2006, had an addendum stating there would be no deductions for producing or transporting of any kind. Now certain companies are disregarding their own leases and doing as they please, claiming deductions no matter what the terms may be. Fortunately, it’s not all gas companies.
Seems to me if anything is “unconstitutional,” it is blatantly breaking the terms of a contract that a company has signed. Some of these gas companies, by their actions, act as if the Pennsylvania’s Guaranteed Minimum Royalty Act of 1979 doesn’t even exist! One company in particular–one of the largest gas companies in the U.S.–is at the center of most of these outrageous deductions. We all know the story of Chesapeake Energy balancing their books by on the backs of landowners in Pennsylvania. It is also no secret that Chesapeake has been subpoenaed by the Federal Department of Justice–just one of the agencies investigating these matters.
Politicians always seem to find a way to get the money they need to fund their agendas. If and when a tax severance is imposed, production of natural gas will decline. There will even be more of a burden of taxes passed on to taxpaying landowners. There is no doubt that gas companies will attempt to deduct a severance tax from royalties. Gov. Wolf needs to stand up for the rights of the landowners who voted him into office. Gov. Wolf, don’t be a bystander as Gov. Cuomo has been in New York State for years, only to take away the rights of landowners who were hoping to have their land drilled upon. How many of New York’s voters would like to take back their vote?
Gov. Wolf, you need to stand up for the leased landowners who have made Pennsylvania’s prosperity, and potentially the source of tax revenue, possible. I hope that this doesn’t fall on deaf ears. We landowners have a right to know where you stand on HB 1684.