A battle royal has developed over royalties in Pennsylvania and other leading gas-producing states, where landowners are bitterly disputing the sums that some drillers have been taking from royalty checks already severely diminished by a collapse in prices.
Chesapeake Energy Corp. alone is facing royalty lawsuits in Louisiana, Texas, Ohio, Oklahoma, Arkansas and Pennsylvania—including one filed by the Pennsylvania attorney general—and says it has received subpoenas from the U.S. Department of Justice, the U.S. Postal Service and states over its royalty practices.
As The Associated Press reports, the deductions’ impact is especially acute in Pennsylvania, where gas extracted from the Marcellus Shale, the nation’s largest natural gas field, has been selling at a steeper discount than anywhere else in the country. Some landowners have seen their royalty checks dwindle to nothing at all, despite a 1979 state law that mandates a landowner royalty of at least 12.5% of the value of the gas. In rare cases, landowners have even gotten statements with negative balances.
In the early years of the fracking boom, royalties could amount to tens of thousands of dollars per month. Then price tumbled, the wells began producing less gas as they aged and residents began taking a closer look at their drastically shrunken checks. Many of them didn’t like what they saw: huge deductions for the cost of getting the gas from well to market.
Chesapeake did not answer questions from The Associated Press about its practice of taking deductions, but says in a statement it has been working with the Pennsylvania attorney general’s office and class-action plaintiffs on a “global resolution” of the royalty dispute. A mediation session is scheduled for Oct. 25.
The disagreement centers on how the gas should be valued for royalty purposes.
