Corbett challenges royalties of gas producer Chesapeake Energy

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HARRISBURG -- Gov. Tom Corbett and a state senator from northeastern Pennsylvania are calling for an investigation of how Chesapeake Energy deducts costs from natural gas royalty payments owed to landowners.

In a letter Thursday to Chesapeake CEO Robert Lawler, Mr. Corbett said he was disappointed that complaints of Pennsylvania landowners had not been heeded. He went on to ask state Attorney General Kathleen Kane to "examine this issue" and promised the support of his administration.

"As you know, for some time I have received complaints from my constituents and your leaseholders regarding practices of Chesapeake Energy which strike many as unfair and perhaps illegal," Mr. Corbett wrote to Mr. Lawler.

"Deductions of post-production costs, in a manner which seemingly few if any other operators in Pennsylvania utilize, has caused a significant erosion of the trust and goodwill the natural gas industry has established with Pennsylvania leaseholders and local communities."

A spokesman for Chesapeake declined to comment.

In October, the Pittsburgh Post-Gazette reported that Chesapeake Energy was deducting "impact fee" payments out of oil and gas lease royalties.

The state impact fee is the tax that drillers pay to the state, meant to help counties and towns pay for, among other things, repairing road and bridge damage caused by the heavy gas trucks, preserving water supplies, and repairing water and sewer systems.

But Act 13, the state's major oil and gas law, bars such fees from being deducted from royalty payments.

Ms. Kane was also asked to look into the matter by state Sen. Gene Yaw, R-Lycoming, who wrote in a letter that his office had received complaints about Chesapeake's practices from farmers, accountants and other landowners. The primary complaint, he wrote, involved the deduction of post-production costs.

"One landowner related that the deductions were greater than the royalty payment, so it is actually costing the landowner money to have gas extracted from the property," he wrote.

Joseph Peters, a spokesman for Ms. Kane, said attorneys are reviewing the issue to determine if the office has jurisdiction. If so, he said, it would examine whether involvement by the attorney general would affect any private lawsuits.

In his letter, Mr. Corbett said he supports bills in the General Assembly "aimed at better protecting the rights of our landowners, particularly with respect to fair treatment of royalty payments."

Mr. Yaw has introduced a package of legislation aimed at oil and gas leases. One bill would allow landowners to inspect gas company records to verify payments. Another would ban a gas company from terminating a lease in retaliation for an owner questioning the accuracy of royalty payments.

Karen Langley:

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