PA Landowners: Don’t Cash that Surprise Royalty Check Just Yet

Pennsylvania landowners may think Christmas came early this year. Perhaps you’re a landowner and just received a surprise royalty check in the mail for a long-dormant well on your property. That well hasn’t produced in what seems like forever. Last time you got a royalty check was what…maybe 10 years ago? And look at this! Santa just visited! After all that time the driller decided to pump some more from that old well. But before you run to the bank and cash the check, thinking you can pay for more Christmas presents, better think twice. Or three times. You may about to be taken for ride. In July the Pennsylvania Senate passed an awful budget bill that includes a variety of new taxes, including a new severance tax on the Marcellus industry. The Senate also slipped in Section 1610 into the budget bill, which changes established lease law with respect to oil and gas wells that no longer produce anything (see PA Senate Slips Anti-Landowner Measure into State Budget Bill). Under then-existing law, when an oil or gas well stops producing–and the landowner quits getting royalty checks–the lease is considered terminated. Done. Finished. Under new Section 1610, drillers can resurrect those dead leases under a couple of conditions. If the landowner doesn’t officially declare “your lease is now dead since you’re not producing anything” a driller can quick-like-a-bunny restart production at the well and send the landowner a piddly royalty check, re-starting (or continuing) the existing lease with its existing terms. Or if the driller sends a notice to the landowner stating its intention to drill a new well on the property, and if the landowner doesn’t object within a 3-month time limit, the driller is free to begin drilling a NEW well, under the OLD lease terms. Section 1610 really stinks. Landowners are shafted out the opportunity to sign new leases with new bonuses and better royalty rates. Fortunately the severance tax didn’t make the final cut in the budget bill. Unfortunately Section 1610 did make it–and is now PA law. If you get a royalty check “out of the blue” for a long-dormant well, head for a lawyer, quick, BEFORE you cash that check…

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