Commissioners to ask Pa. Legislature for assistance
TOWANDA - Gas royalty checks have become an important component in the household budgets of many local senior citizens and working families, and because the money from the checks is spent locally, it now has a huge impact on the county's economy, said Bradford County Commissioner Doug McLinko.
That is why, he said, he is concerned about large chunks being taken out of some residents' royalty checks by gas drilling companies for post-production costs.
"Many times, we've seen as much as 30 percent or more" taken out of royalty checks for post-production costs, McLinko said at the most recent meeting of the Bradford County commissioners. Unless prohibited from doing so in a lease, gas companies can deduct money from royalty payments for various costs that arise after the gas is taken out of the ground, including transporting the gas to market, compressing the gas to put it into an interstate pipeline, and dehydrating the gas.
The head of the Pennsylvania chapter of the National Association of Royalty Owners, Janet Root, spoke at the commissioners' meeting, saying that some landowners are being saddled with a deduction for transporting gas to market that is far higher than what their fair share of the cost should be.
In addition, many landowners are having trouble figuring out what the deductions are for on their check stubs, McLinko said.
The commissioners say they plan to ask the Legislature to help address these issues.
Next week, for example, the commissioners plan to pass a resolution which would ask the Legislature to address the Pennsylvania Supreme Court's March 2010 ruling in the Kilmer vs. Elexco Land Service Inc. case, which allowed deductions for post-production costs to reduce royalty payments below the state's 12 1/2 percent guaranteed minimum royalty rate.
The resolution will ask the Legislature to guarantee that landowners receive a minimum royalty of 12 1/2 percent of the value of the gas when it is sold, regardless of how much post-production costs the gas company incurred, said Jonathan Foster Jr., an attorney who has been working on drafting the resolution.
In its ruling on the Kilmer case, the Supreme Court said it was making its decision based on standard industry practices, and on the fact that the Legislature had not provided direction on how post-production costs should impact the guaranteed 12 1/2 percent minimum royalty.
The commissioners will ask the Legislature to clarify its intent when it established the 12 1/2 percent guaranteed minimum royalty, Bradford County Commissioners Daryl Miller said.
If the Legislature's intent was that the landowner should receive at least 12 1/2 percent of the value of the gas at its point of sale, "then that's what the landowner should receive," Miller said.
State Sen. Gene Yaw said he has not been told by the commissioners what the content of the resolution, and therefore could not say much about it.
However, Yaw expressed concern about the commissioners' wish that the state's guaranteed minimum royalty be defined as 12 1/2 percent of the value of the gas at its point of sale, because "tinkering with contacts (existing leases) raises all kinds of Constitutional questions."
James Loewenstein can be reached at (570) 265-1633; or email: email@example.com.