Pennsylvania Legislature Approves Pooling and Royalty Transparency Bill

July 5, 2013

On June 30, 2013, the Pennsylvania General Assembly passed Senate Bill 259, which implements significant changes to oil and gas laws of the Commonwealth. One of the key provisions of SB 259, already drawing praise from industry and raising the ire of landowners, permits natural gas companies to use horizontal drilling to pool and jointly develop contiguous leased acreage, even in the absence of lease provisions expressly permitting pooling, unless the company is expressly prohibited from doing so under a pertinent oil and gas lease. Notably, this provision appears to apply retroactively to existing leases. SB 259 also provides, in the absence of an agreement by all affected royalty owners, the production shall be allocated to each lease as the operator reasonably determines.

Bill 259 also attempts to create greater transparency with respect to oil and gas royalties paid to landowners. Among other requirements, SB 259 requires that royalty check payment stubs issued to landowners by natural gas companies include the total amount of all severance and other production taxes and other deductions permitted under the corresponding oil and gas lease.

In addition to severance other production taxes and deductions, the bill also requires that royalty check payment stubs to landowners include (1) the well identification information, (2) the month and year of gas production, (3) the total barrels of oil or number of Mcf of gas sold, (4) the price received per barrel, Mcf or gallon, (5) the net value of total sales from the property less taxes and deductions, (6) the landowner’s interest in production, (7) the landowner’s share of the total value of sales prior to deduction of taxes and deductions, (8) the landowner’s share of the sales value less the landowner’s share of taxes and deductions and (9) the natural gas company’s contact information.

If SB 259 is signed by Pennsylvania Governor Tom Corbett, natural gas companies will be tasked with including significantly more information on royalty check payment stubs to landowners than is currently industry custom, but will in turn obtain greater flexibility in constructing drilling units that sensibly and efficiently extract the Commonwealth’s mineral resources.