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March 13, 2014

Pennsylvania Senate Advances Oil and Gas Lease Protection Package

On March 11, 2014, the Pennsylvania Senate Environmental Resources and Energy Committee advanced legislation introduced by Senator Gene Yaw (R-Lycoming) aimed at expanding the rights of oil and gas lessors in connection with royalty payments.  Two of the bills unanimously advanced from the committee, while one bill passed by a vote of 10 to one.  The legislation, known as the Oil and Gas Lease Protection Package, was introduced in January and is comprised of three bills.

The first bill (Senate Bill 1236) would expand legislation that was enacted last year requiring lessees to provide a detailed itemization of all deductions taken from a lessor’s royalties on each and every royalty check stub, attachment to a royalty payment or other record of payment.  Specifically, Yaw’s bill would authorize a lessor to inspect the lessee’s records to verify that proper payments had been made.  The information to be inspected would remain confidential and could not be disclosed to any other person.  Senate Bill 1236 was amended in committee to require that all royalty payments be made within 60 days of production unless otherwise stated in the lease and that any delinquent payments be paid with interest.

The second bill (Senate Bill 1237) would protect a lessor who questioned the accuracy of any royalty payments by prohibiting a lessee from retaliating in the form of lease termination or the cessation of development on leased property.  Violations would be subject to civil penalties of up to $1,000 per day.  This bill was the only one to advance without unanimous agreement from the committee due to the vote in opposition by minority chair Senator Jim Ferlo (D-Allegheny).

The final bill (Senate Bill 1238) would essentially obligate lessees to record a surrender document in the applicable county Recorder of Deeds office within 30 days upon expiration, termination, or forfeiture of an oil and gas lease.

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