Landowners dispute shrinking natural-gas royalties, say companies are breaking lease agreements

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A decline in natural-gas prices has some landowners seeing red over reduced royalty checks. They have filed lawsuits in several states claiming deductions are too high and break terms of the lease, Michael Rubinkam reports for The Associated Press. "Chesapeake Energy Corp. alone is facing royalty lawsuits in Texas, Ohio, Louisiana, Oklahoma, Arkansas and Pennsylvania—including one filed by the Pennsylvania attorney general—and says it has received subpoenas from the U.S. Department of Justice, the U.S. Postal Service and states over its royalty practices."

Landowners in the Pennsylvania Marcellus Shale region have seen royalty payments decline to almost nothing, including a few instances where statements have been issued for negative amounts, Rubinkam writes. That goes against "a 1979 state law that mandates a landowner royalty of at least 12.5 percent of the value of the gas." Drillers contend that "royalty is properly calculated based on the market price, less post-production deductions for transportation and processing, a method permitted in most states."

In 2010, the Pennsylvania Supreme Court "sided with the gas companies—but also noted that state lawmakers are 'best suited' to deciding how the royalties should be paid," Rubinkam writes. State lawmakers have scheduled a procedural vote on a state House bill to keep deductions from reducing royalties below the one-eighth minimum, an industry standard for decades. "The gas industry has been lobbying against it, asserting it would unconstitutionally interfere with tens of thousands of existing private contracts. Any contractual disputes should be decided in the courts, not through legislation, the drillers argue," Rubinkam reports.