Legislative Update: Pa. Passes Oil and Gas Lease Act Share

by Spilman Thomas & Battle, PLLC
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On July 9, 2013, Governor Corbett signed the Oil and Gas Lease Act, Senate Bill No. 259 of 2013 (the "Act"), which amends Pennsylvania's Guaranteed Minimum Royalty Act.

The Act provides that, unless expressly prohibited by a lease, an operator has the right to develop multiple contiguous leases jointly by horizontal drilling. Thus, a lease silent on pooling may now be pooled for horizontal drilling. Section 2.1 of the Act also provides that, in the absence of a division order or other similar agreement, the operator may allocate royalties among the respective interest holders in such proportion as the operator reasonably determines to be attributable to each lease. The Act does not permit the forced pooling of unleased oil and gas estates.

Additionally, the Act requires the following information be provided to interest owners at the time of payment, either on a check stub or attached document:

  1. Lease identifying information;
  2. Month and year of 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 taxes paid and other deductions permitted under the lease;
  6. Net value of total sales from the leased property;
  7. Royalty interest, expressed as a decimal or fraction;
  8. Interest owner's share of the total value of sales prior to deductions;
  9. Interest owner's share after deductions; and
  10. Contact information (address and telephone number).

An operator may make one accumulated payment annually if accumulated proceeds total less than $100. Additionally, any lease that does not provide for at least one-eighth royalty will be subject to an escalation equal to one-eighth royalty when the original state of the subject land is altered by any new drilling or any other procedure for increasing production.

Finally, in the event of a conflict between a lease and a division order, the terms of the lease will control and a division order may not amend or supplement the terms and conditions of an oil and gas lease.
 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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