Pennsylvania Takes Steps to Limit Gas Production Cost Deductions

Pennsylvania lawmakers are considering a measure that would limit the ability of natural gas companies to deduct costs before paying landowners the royalties promised under mineral rights leases.

The House Environmental Resources and Energy Committee has approved the measure that would ensure a landowner’s royalty payment couldn’t go below 1/8 of the gas sale proceeds on the commercial market.

The action is largely sparked by complaints from homeowners against Chesapeake Energy for significantly deducting post-production costs to the point where some lease-holders say they have found their payments reduced to near nothing.

The legislation would allow cost reductions but would keep the limit of payout to at least 1/8 of the commercial value.

The measure is proposed to apply to both existing and future leases.

The natural gas industry says the legislation would unconstitutionally alter terms of existing, legally negotiated contracts.