New PA Bill Defines Word “Royalty” – Doesn’t Change Contracts
A new bill just introduced in the Pennsylvania House by State Rep. Eric Davanzo (Republican from Westmoreland County), House Bill (HB) 1763, clears up the confusion and bastardization of the term “royalty,” making it easy for everyone to know what can and cannot be deducted from royalties with respect to oil and gas leases. Davanzo got 23 of his fellow House members to co-sponsor the bill. It is a refreshingly simple bill that does not change any existing contracts. It defines the point to establish the value of gas (or oil) as that point when it is sold to an unrelated third-party purchaser. Simple!
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A relatively short jury trial last week in a Belmont County, OH court resulted in a quick, three-and-a-half-hour decision in favor of a landowner against Rice Drilling (now EQT) and Gulfport Energy in a trespass case. The jury awarded the landowner, Tera LLC (owned by Thomas Shaw), a $40 million judgment. It’s believed to be the single largest jury award in Belmont County history.
Several weeks ago we brought you the news that landowner Gateway Royalty was sounding the alarm over a new bill quickly advancing in the Ohio legislature. Ohio’s House Bill (HB) 152 would use forced pooling if 65% of a proposed unit’s landowners are leased (too low a bar) and also would force the landowner to accept a 12.5% royalty and force them to accept post-production deductions with royalties in some cases potentially going down to nothing (see 
Just coming to light for us now is a long-running lawsuit in Tioga County, PA by landowners who claim that UGI has taken their mineral rights as part of operating the Meeker Storage Field, an underground natural gas storage facility. The landowners lost the lawsuit in the Court of Common Pleas of Tioga County (trial court) in March 2019 (although the case began in 2016). The landowners appealed to Commonwealth Court and lost there too, in November 2020. The landowners appealed again, to the Pennsylvania Supreme Court. The Supremes have just accepted the case.
The Democrats in Congress are making another run at punishing (eliminating) the use of fossil fuels. About a month ago Senate Finance Committee Chairman Ron Wyden (wacko from Oregon) and 24 fellow Senate Democrats introduced a bill called “The Clean Energy for America Act”–an overhaul of the federal energy tax code, aimed at combating nonexistent human-caused climate change. This time around the Dems are targeting (among other things) repeal of the percentage depletion allowance that landowners and investors use in offsetting royalty payments for tax purposes. In other words, mom and pop landowners that receive royalties will see their federal income tax bills go up. Unless you stop this disgusting bill now, before it becomes law.
Over the years we’ve covered a number of stories about companies buying future royalty payments from landowners (and rights owners) for an upfront, one lump sum payment now. Normally the deals don’t disclose how much money changed hands for those upfront payments. We have some recent transactions from a newcomer to the Marcellus/Utica, a company willing to announce how much they paid to buy those rights, which caught our attention. We have financial details for a deal in the Marcellus, and details for a deal in the Utica to share with you. We have hard numbers for how much they paid to buy those royalty rights.
Back in 2018 MDN analyzed the economic impact from just one driller (Cabot Oil & Gas) in one county (Susquehanna County, PA) and discovered Cabot had put $1.5 billion into the pockets of private landowners through signing bonuses and royalties, and had spent another $3.5 billion on drilling (over $5 billion total spent) over a 10-year period–all in Susquehanna County (see 
Whether or not drilling companies have the right to deduct post-production expenses (processing the gas, pipeline transportation, etc.) has raged for more than a decade here in the Marcellus/Utica. Even if landowners have ironclad, very specific language in the contract prohibiting post-production deductions from royalties, some companies (*cough* Chesapeake Energy *cough*) still find ways to claim deductions anyway, leading to expensive and years-long lawsuits that benefit the lawyers more than anyone else. A decision in a recent Texas Supreme Court case gives landowners in the M-U some hope.
In May 2020 the Pennsylvania Supreme Court heard oral arguments in a case challenging whether or not the state Attorney General’s office has the right to use a consumer protection law to prosecute companies like Chesapeake Energy and Anadarko over royalty payment shenanigans (see 
Chesapeake Energy has screwed over landowners in northeastern Pennsylvania (and elsewhere) for years. Under the provisions of a “settlement” just brokered by PA’s shale-hating Attorney General, Josh Shapiro, Chesapeake will get away with settling the royalty case for pennies on the dollar. The average landowner will get just over $300 from this “settlement.” What a cruel joke. This is all about headlines and showmanship for Shapiro who hopes to run for governor next year. Don’t fall for his “I’m the savior of landowners” schtick. He just sold landowners down the river in return for a headline his campaign can use.
EQT Corporation, the largest natural gas producer in the United States, is asking West Virginia officials to remove two judges from hearing cases brought by landowners against the EQT relating to royalty disputes for alleged improper deductions. EQT wants Judges Timothy Sweeney and David W. Hummel Jr. to be disqualified from at least three cases (that we know of).
The Ohio Supreme Court just delivered a decision that affects one particular landowner (and former mineral rights owner), but also has implications for all Ohio landowners and rights owners. And by extension, implications for drillers that pay royalty payments. The Supremes found in Gerrity v. Chervenak that the landowners in the case (the Chervenaks) did enough due diligence when searching for the rights owner who had moved out of the area. The Supremes said the landowner performed the proper steps to reclaim ownership of the severed mineral rights under their land.