The new year brought some changes to how natural gas can be harvested from unconventional wells across Pennsylvania, allowing drillers to go father with their horizontal drilling and cross under unit boundaries in the interest of efficiency and to save wear-and-tear in local communities.
But part of this change has recently come under fire by Bradford County commissioners Daryl Miller and Doug McLinko. They stressed that they don’t oppose this bill or the natural gas industry utilizing advanced technology in this capacity, but believe the bill represents a hypocrisy in Harrisburg when it comes to whether or not established natural gas drilling contracts can be changed under the Constitution.
The issue of whether or not these contracts can be changed has been a key argument several years ago as state Rep. Garth Everett (R-84), with the support of state Rep. Tina Pickett (R-110), former state Rep. Matt Baker and other area lawmakers tried to garner support for minimum royalty legislation that would guarantee landowners a minimum 12.5% — preserving the intent behind the Guaranteed Minimum Royalty Act of 1979 — and preventing companies like Chesapeake and Anadarko from subtracting post-production costs from this amount.
These post-production costs had resulted in landowners not receiving any royalties for the natural gas produced on their land in several cases, and even billing that showed they owed the gas company money.
As commissioners and residents tried to make their voices heard in Harrisburg, they encountered natural gas lobbyists and other lawmakers saying these contracts can’t be changed under the state and federal Constitution.
This position was previously shared by state Sen. Gene Yaw (R-23), whose representation includes Bradford County. He believed it was more of an issue for the courts and had helped spur the Pennsylvania Attorney General’s Office’s current lawsuit against the Chesapeake and Anandarko energy companies over the practice. However, he said he would support the legislation if it made its way to the Senate.
“What we were told, if you remember, time and time again in Harrisburg when we went down there is that you can’t alter contracts,” McLinko said. “Well, I think we got lied to. There it is. They did it.”
“Now, when they want to go through multiple pools to drill, they have a bill,” said Miller.
Act 85 of 2019 was signed into law back in November.
Initially proposed as Senate Bill 694 by Yaw, the senator said in his co-sponsorship memo the proposal would take advantage of recent advances in natural gas drilling technology and practices in order to reduce disturbances in the communities that host this activity. With drillers able to extend their horizontal well bores even longer, Yaw said the move would reduce the number of well pads, access roads, gathering lines, and truck traffic required for these operations
“It is a positive for landowners, the environment, neighbors, and our local governments,” he said.
These longer well bores are able to cross through neighboring units as long as the neighboring leases grant the drilling company the right to do so. Yaw noted that companies would not be able to harvest natural gas from unleased land, and it would not impair current contracts or leases.
“It provides for a process and accounting mechanism to allow well bores to cross multiple units, provided the operator has the right to drill wells on the units via leases with all landowners/members of the units,” Yaw explained in an email responding to the commissioners’ concerns. “The operator is then required to reasonably and proportionately allocate the production across the various members of the units. It does not impair any current contracts or leases, does not allow for any production from unleased land, and would not apply in cases where this practice would be contractually prohibited.”
Yaw chalked up the commissioners’ concerns as a misunderstanding of the language, adding.”There are no royalities before the first perforation. This is true for leases prior to Act 85. You only pay out after the first perforation.”
These perforations are where the hydraulic fracturing fluid can escape from the casing and fracture the surrounding shale, allowing the driller to harvest the natural gas that’s released.
However, McLinko and Miller, referencing a summary of the legislation provided by county Solicitor Jonathan Foster Jr., argued that the Act 85 does change these contracts. This includes altering the calculations associated with acreage in pooling clauses, leaving it up to a reasonable determination that isn’t specified.
The summary utilized points published by attorney Robert J. Burnett, who specializes in oil and gas law as part of the Pittsburgh-based Houston Harbaugh Attorneys at Law. In his article, which is featured on the firm’s website, Burnett calls Act 85 a “deeply flawed piece of legislation.”
Because a single well bore can hold and maintain leases in two different units, Burnett wrote, “Act 85 will unilaterally change and alter thousands of oil and gas leases across Pennsylvania. While the author understands and appreciates the potential benefits of cross-unit drilling, Act 85 advances that objective at the expense of landowners and should have not been enacted.”
McLinko was also angered that commissioners hadn’t previously been told about Act 85 given the amount of natural gas drilling activity that takes place in the county, and that they had to learn about it from a concerned landowner.
With multiple failed attempts at minimum royalty legislation to help landowners who have part or all of their royalties due to post-production costs, and Chesapeake and Anadarko energy companies currently fighting a lawsuit from the Pennsylvania Attorney General’s office regarding the practice, McLinko suggested it might be time to reintroduce minimum royalty legislation given the precedent now set by Act 85.
“The property owners should be outraged, not at the gas industry, but at Harrisburg once again because how many years have we heard that we can’t alter leases, we can’t change leases? Well, here it is,” said McLinko.