Deep Dive: PA Royalties Civil War Between Landowners & Drillers
For the past few days MDN has chronicled what we’ve named a royalties civil war happening between Pennsylvania landowners and the Marcellus drilling industry in the state–two groups usually on the same side. The war revolves around royalty checks–and how meager they are (see Righteous Royalty Anger: PA Town Votes to Block Gas Production and Civil War: Bradford PA Escalates Fight with MSC re Royalty Bill). As we’ve previously explained, an oversimplification is landowners maintain that a 1979 PA law guarantees landowners a 12.5% royalty regardless of expenses involved in extracting the gas, and drillers say no, landowners must abide by the contracts they’ve signed and if those contracts allow post-production costs to be deducted before calculating a royalty, the rate may go lower than 12.5%–sometimes to zero and below. Chesapeake Energy is the primary offender, according to landowners. The issue is complex, but at its core is (according to landowners) about fairness. We’ve located two excellent bits of information, one an article, another an email, that explains both sides. The article is from the Houston Harbaugh law firm and does a great job explaining the landowners’ view of the issue, and their desire to pass House Bill (HB) 1391. The email was from the Marcellus Shale Coalition to members of the PA legislature, sent to them last June to explain why, in the opinion of the drilling industry, HB 1391 is unconstitutional and a bad choice. These two views clearly lay out the issues involved so everyone can understand why we are facing a civil war among the ranks…
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Residents in Wilmot Township (Bradford County), PA are mad as hell over shorted royalty checks–and they aren’t taking it anymore. Yesterday Wilmot Township’s three supervisors passed a resolution demanding, “production be discontinued from wells where landowners are having their royalty checks diminished to nothing or nearly nothing.” That is, they want to block natural gas production from existing shale wells drilled in a town smack in the middle of one of the most-drilled places in Pennsylvania. We’ve long chronicled the fight between landowners and some (certainly not all) drillers who are screwing them out of royalty payments by claiming inflated post-production costs. The issue first came to prominence with claims by landowners signed with Chesapeake Energy, who claimed Chessy had cut a sweetheart deal with its former midstream company (Access Midstream) whereby Access bumped up its charges for piping gas which Chesapeake claimed as an expense and deducted from royalty checks, and then Access turned around and invested big money into the old mothership company (see 
This one has us scratching our heads. Landowners Damon and Kendra Baker, in Tioga County, PA, signed a lease with Shell’s SWEPI in 2006. We’re guessing the signing bonus was peanuts because at that time the Marcellus was still in its infancy in PA. SWEPI constructed a well pad on their property in 2010 but had drilled no wells by the time the lease expired in 2011. The Bakers wanted a healthy re-signing bonus to allow SWEPI to lease their land again. SWEPI’s final offer was $150,000 (not sure for how many acres). The Baker’s, according to SWEPI, wanted half a million dollars. SWEPI said “no thanks” and therefore, according to state Dept. of Environmental Protection standards, needs to restore the property to its original state and be done with it. But the Bakers won’t let them re-enter the property. So SWEPI is suing and the clock is ticking–they only have until December to put it back to original condition or the company will be fined $500/day until it’s done…
Last December Pennsylvania’s felony-indicted Attorney General, Kathleen Kane, brought a lawsuit against Chesapeake Energy, Anadarko and Williams accusing them of, among other things, royalty fraud (see 
A landowner couple in Bradford County, PA, Edward and Kathleen Ostroski, filed a royalty lawsuit against Chesapeake Energy claiming Chesapeake was screwing them out of money by conducting “creative” accounting and deducting expenses that shouldn’t be deducted. Seems like there’s hardly a state where Chessy drills where someone has not filed a similar lawsuit against the company. However, in the Ostroski case, the couple claimed (or rather, their lawyers claimed) the case should be a class action. That there are in fact some 2,000 other landowners similarly affected by Chesapeake’s actions. A U.S. Middle District judge ruled on Monday that the Ostroskis may pursue their case–but only for themselves. There will be no class action. If other landowners feel cheated, they will have to bring their own lawsuits against the company…
Norwegian oil giant Statoil, which is 67% owned by the country of Norway, was an early and big mover in leasing Marcellus and Utica Shale acreage, amassing a huge 665,000 acres. Over the past few years Statoil has been equally aggressive in divesting itself of its non-operated acreage (Statoil doesn’t do the drilling) in the northeast–in particular in West Virginia. This is about to get complicated, but we’ll try to make it understandable. A lot of Statoil’s acreage is in joint venture deals. In December 2014, Statoil sold some of its “working interest” in the Marcellus acreage it owns in WV and PA to Southwestern Energy for $394 million (see 
The U.S. District Court for the Middle District of Pennsylvania has sided with landowners in a dispute with Shell’s shale drilling arm, called SWEPI (Shell Western Exploration Production Inc.). SWEPI signed a lease with two landowners who own a collective 1,036 acres in Lycoming County. SWEPI promised a $4,000 per acre signing bonus, but a few months after signing SWEPI decided they didn’t want the acreage after all and tried to cancel the lease and the bonus payment. The judge ordered SWEPI to pay $2,072,000 to each of the two landowner families…
What if you’re an heir to land that was drilled on or under in Pennsylvania? There may be money “ready and waiting to be distributed”–there for the asking. But the asking is a bit complicated. In cases where the owner(s) of the mineral rights for a piece of property is unclear, the PA Dormant Oil and Gas Act (DOGA) comes in to play. What is DOGA and how does it work?…
The NEXUS Pipeline is a $2 billion, 255-mile interstate pipeline that will run from Ohio through Michigan and eventually to the Dawn Hub in Ontario, Canada (see 
A decision by the Middle District Court of Pennsylvania is worth noting–for both drillers AND landowners. A landowner in Susquehanna County, PA sold some land already under lease to a new landowner/rights owner. Neither the new landowner nor the previous landowner informed the driller of the change in ownership. The time came to renew the lease and under the terms of the contract the driller sent payment–but didn’t know about the change in ownership–so the driller sent the payment to the previous owner. The new landowner used that faux pas as a legal excuse to sue the driller to break the contract. The new landowner claimed the paperwork filed (not the full lease but an abstract) didn’t contain mention of informing the driller. In other words, the landowner used the “we didn’t know” excuse. The judge disagreed and said, a) the lease itself clearly outlines the responsibilities of the old/new landowners to inform the driller, b) there is a reasonable expectation for the new landowner to perform due diligence in seeking out a copy of the original lease to know that. Therefore the new landowner is still under lease. Here’s an outline of the case, with names…