Practically everyone now is aware of Allegheny County's lucrative contract with Consol Energy to drill Marcellus wells on property at the Pittsburgh International Airport. The county is to receive a $50 million signing bonus plus a straight, nondeductible 18 percent royalty on the gas or oil extracted. Most people have also heard of landowners who have received similar large signing bonuses and royalties as high as 20 percent.
But how many people are aware of the fact that the 2010 Pennsylvania Supreme Court ruling (Kilmer v. Elexco) has decimated the intent of Pennsylvania's 1979 Guaranteed Minimum Royalty Act? The intent of the GMR Act was to protect landowners from unfair or deceptive drilling company leases and guaranteed landowners 12.5 percent minimum royalty payments.
The recent Supreme Court ruling is now allowing drilling companies to take almost unlimited deductions from royalties for post-wellhead costs (gathering, transportation, marketing, etc.), which are almost impossible for people outside the gas industry to fathom or verify. Rapacious, mostly out-of-state, gas drilling companies are now taking ever-increasing deductions, reportedly sometimes as much as 80 percent to 90 percent of royalties.
Landowners, mostly farmers, who leased their gas rights for shallow wells before anyone outside of the gas industry ever envisioned Marcellus deep well and horizontal drilling, are now locked into 12.5 percent leases from which greater and greater post-wellhead deductions are being taken.
Gov. Tom Corbett and the state Legislature need to rectify this outrageous injustice toward Pennsylvania landowners with pre-Marcellus or pre-Kilmer v. Elexco leases.
First Published October 14, 2013 8:00 PM