Pennsylvania House of Representatives unanimously passes bill requiring certain information in royalty statements

On Tuesday, June 11, 2013, the Pennsylvania House of Representatives gave unanimous consent to H.B. 1414, which would amend Pennsylvania’s law regarding oil and gas royalties, commonly-known as the Guaranteed Minimum Royalty Act. The amendment won’t change the net-back method of royalty calculation or change the minimum royalty amount. But, it would require producers to provide a detailed check stub or other document detailing the following information:

(1) A name, number or combination of name and number that identifies the lease, property, unit or well or wells for which payment is being made and the county in which the lease, property or well is located.
(2) Month and year of gas production.
(3) Total barrels of crude oil or number of Mcf of gas or volume of natural gas liquids sold.
(4) Price received per barrel, Mcf or gallon.
(5) Total amount of severance and other production taxes and other deductions permitted under the division order, lease, servitude or other agreement with the exception of windfall profit tax.
(6) Net value of total sales from the property less taxes and deductions from paragraph (5).
(7) Interest owner's interest, expressed as a decimal or fraction, in production from paragraph (1).
(8) Interest owner's share of the total value of sales prior to deduction of taxes and deductions from paragraph (5).
(9) Interest owner's share of the sales value less the interest owner's share of taxes and deductions from paragraph (5).
(10) Contact information, including an address and telephone number.

Plus, the bill adds an Apportionment section which allows an operator to develop contiguous leases by horizontal drilling, unless expressly prohibited from doing so in the particular leases. In such a situation, royalties would be determined, unless agreed otherwise by all affected royalty owners, by allocation “in such proportion as the operator reasonably determines to be attributable to each lease.”

Moreover, the bill allows for accumulation of royalties annually if the royalties total less than $100. There are certain exceptions to this allowance and the proposed law imposes certain escrow account requirements.

The bill now goes to the Pennsylvania Senate for consideration. As drafted, the bill would take effect 60 days after enactment.

This article was prepared by Jeremy Mercer ( or 724 416 0440) from Norton Rose Fulbright's Energy Practice.