Energy
3:56 pm
Mon July 29, 2013

Pa. Landowners Feel Cheated By Royalty Payments From Fracking

Originally published on Wed July 31, 2013 8:01 pm

Transcript

MELISSA BLOCK, HOST:

Now to another part of the country that's seeing a lot of new drilling, thanks to fracking, that's Pennsylvania. Some landowners there are upset about royalties. They claim they're being cheated out of payments by one of the country's biggest natural gas companies.

Marie Cusick of member station WITF in Harrisburg tells us more.

MARIE CUSICK, BYLINE: In recent years, energy companies have raced into rural parts of Pennsylvania, looking for natural gas. But before they could drill wells, the companies had to sign leases with landowners. Lots of resident of Bradford County have already signed such contracts. It's a region of rolling hills along the northern tier of Pennsylvania, bordering New York.

Many people here signed leases with the understanding they're legally entitled to a certain cut of the money companies make, getting the gas out of their land. State law puts that figure at 12.5 percent - it's the minimum guaranteed royalty. And now, a number of landowners are angry. They say the companies drilling on their land are forcing them to help pay for transporting the gas, and that slashes the value of their royalty checks.

Janet Geiger and her husband are retirees who own about 10 acres along a quiet road in Bradford County. She points to their monthly royalty statement.

JANET GEIGER: This is all withholding - all of these figures.

CUSICK: So you got $39?

GEIGER: We got $39. Yeah, big deal.

CUSICK: That was the total for May. They didn't get a check at all in March. The check comes from Chesapeake Energy Corporation based in Oklahoma City. It is the number one drilling company in Pennsylvania and number two for the whole country.

GEIGER: And I made three phone calls to Oklahoma City before they finally told me: We never sent you a check last month. We hadn't sold the gas - we didn't have the money.

CUSICK: Jackie Kingsley is a township supervisor in the county with a similar story. She's a dairy farmer who owns about 170 acres and has leased out her land for drilling.

JACKIE KINGSLEY: It should be clear what we're paying and why we're paying the amounts we're paying.

CUSICK: At State Senate hearing earlier this summer, Kingsley held up a map of Bradford County, showing large swaths of land leased up. She feels the royalty check deductions are confusing and too often short-change landowners.

KINGSLEY: People should be paid fairly for what they're sitting on.

CUSICK: David Sikes flew in for the hearing from Oklahoma. He heads the National Association of Royalty Owners.

DAVID SIKES: We're not seeing these kinds of deductions, percentage-wise, being taken out in other parts of the country that we're seeing up here. And that's problematic.

CUSICK: After hesitating to point a finger, Sikes did say one company stands out for being particularly aggressive with deductions.

SIKES: Well, OK, Chesapeake.

(LAUGHTER)

SIKES: More than once we've heard their name mentioned and it's unfortunate.

CUSICK: Chesapeake was invited to the Senate hearing, but didn't show. The company has also declined repeated requests to comment for this story.

Doug McLinko, chairman of the county commissioners, attended the hearing. He's a Republican and a gas-industry supporter, but says he's concerned about his constituents' complaints. They tell him their royalty checks are being eaten up by fees for transporting gas.

DOUG MCLINKO: We are seeing people with zeros in their checks - nothing there.

CUSICK: Much of the trouble surfaced after a lawsuit known as Kilmer v. Elexco. Back in 2010, the case led to a unanimous State Supreme Court decision. The court held that since Pennsylvania's law didn't define the word royalty, the industry could use its own definition. In other words, companies could offer royalties after taking out production expenses.

In the wake of the controversy, Bradford County is seeing a new kind of boom related to drilling. Lawyers are racing in looking for clients. One group of attorneys has already started a class-action proceeding against Chesapeake. Meanwhile, the company has faced lawsuits over allegations of underpaid royalties in about half a dozen other states.

For NPR News, I'm Marie Cusick.

BLOCK: Both our stories about landowners and natural gas companies came from StateImpact. It's a reporting project of NPR member stations examining how policy and state issues affect people's lives. Transcript provided by NPR, Copyright NPR.