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| THE GENERAL ASSEMBLY OF PENNSYLVANIA |
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| SENATE BILL |
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| INTRODUCED BY YAW, BAKER, D. WHITE, RAFFERTY, WAUGH, COSTA, FONTANA, WOZNIAK AND KASUNIC, FEBRUARY 11, 2011 |
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| REFERRED TO ENVIRONMENTAL RESOURCES AND ENERGY, FEBRUARY 11, 2011 |
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| AN ACT |
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1 | Amending the act of July 20, 1979 (P.L.183, No.60), entitled "An |
2 | act regulating the terms and conditions of certain leases |
3 | regarding natural gas and oil," adding definitions; providing |
4 | for payment information to interest owners for accumulation |
5 | of proceeds from production, for nonpayment of royalties and |
6 | for effects of nonpayment; and making editorial changes. |
7 | The General Assembly of the Commonwealth of Pennsylvania |
8 | hereby enacts as follows: |
9 | Section 1. Section 1 of the act of July 20, 1979 (P.L.183, |
10 | No.60), entitled "An act regulating the terms and conditions of |
11 | certain leases regarding natural gas and oil," is repealed: |
12 | [Section 1. A lease or other such agreement conveying the |
13 | right to remove or recover oil, natural gas or gas of any other |
14 | designation from lessor to lessee shall not be valid if such |
15 | lease does not guarantee the lessor at least one-eighth royalty |
16 | of all oil, natural gas or gas of other designations removed or |
17 | recovered from the subject real property.] |
18 | Section 2. The act is amended by adding sections to read: |
19 | Section 1.1. Short title. |
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1 | This act shall be known and may be cited as the Oil and Gas |
2 | Lease Act. |
3 | Section 1.2. Definitions. |
4 | The following words and phrases when used in this act shall |
5 | have the meanings given to them in this section unless the |
6 | context clearly indicates otherwise: |
7 | "Check stub." The financial record attached to a check. |
8 | "Division order." A contract of sale to the purchaser of oil |
9 | or gas directing the purchaser to make payment for the value of |
10 | the products taken in the proportions set out in the contract |
11 | and which contract is prepared by the purchaser on the basis of |
12 | the ownership shown in the title opinion prepared after |
13 | examination of the abstracts and which is executed by the |
14 | operator, the royalty owner and the other persons having an |
15 | interest in the production. |
16 | "Interest owner." A person owning a royalty interest or a |
17 | working interest in an oil or gas well or unit. |
18 | "Mcf." A unit of measurement expressed by 1,000 cubic feet. |
19 | Section 1.3. Royalty guaranteed. |
20 | A lease or other such agreement conveying the right to remove |
21 | or recover oil, natural gas or gas of any other designation from |
22 | the lessor to the lessee shall not be valid if the lease does |
23 | not guarantee the lessor at least one-eighth royalty of all oil, |
24 | natural gas or gas of other designations removed or recovered |
25 | from the subject real property. |
26 | Section 3. Sections 2 and 3 of the act are amended to read: |
27 | [Section 2. An oil, natural gas or other designation gas |
28 | well or oil, natural gas or other designation gas lease which |
29 | does not provide a one-eighth metered royalty shall be subject |
30 | to such an escalation when its original state is altered by new |
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1 | drilling, deeper drilling, redrilling, artificial well |
2 | stimulation, hydraulic fracturing or any other procedure for |
3 | increased production. A lease shall not be affected when the |
4 | well is altered through routine maintenance or cleaning.] |
5 | Section 2. Escalation required for alteration to original |
6 | state. |
7 | An oil, natural gas or other designation gas well or oil, |
8 | natural gas or other designation gas lease which does not |
9 | provide a one-eighth metered royalty shall be subject to such an |
10 | escalation when its original state is altered by new drilling, |
11 | deeper drilling, redrilling, artificial well stimulation, |
12 | hydraulic fracturing or any other procedure for increased |
13 | production. A lease shall not be affected when the well is |
14 | altered through routine maintenance or cleaning. |
15 | [Section 3. Whenever such an increased production procedure |
16 | has been completed prior to the effective date of this act, |
17 | metering and the above royalty shall commence within 90 days |
18 | after the effective date of this act.] |
19 | Section 3. Commencement of guaranteed royalty. |
20 | Whenever such an increased production procedure has been |
21 | completed prior to the effective date of this act, metering and |
22 | the above royalty shall commence within 90 days after the |
23 | effective date of this act. |
24 | Section 4. The act is amended by adding sections to read: |
25 | Section 3.1. Payment information to interest owners. |
26 | Whenever payment is made for oil or gas production to an |
27 | interest owner, whether pursuant to a division order, lease, |
28 | servitude or other agreement, all of the following information |
29 | shall be included on the check stub or on an attachment to the |
30 | form of payment, unless the information is otherwise provided on |
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1 | a regular basis: |
2 | (1) Lease identification number, if any, or reference to |
3 | appropriate agreement with identification of the well or unit |
4 | from which production is attributed. |
5 | (2) Month and year of sales or purchase included in the |
6 | payment. |
7 | (3) Total barrels of crude oil or number of Mcf of gas |
8 | purchased. |
9 | (4) Owner's final realizable price per barrel or Mcf. |
10 | (5) Total amount of severance and other production |
11 | taxes, with the exception of windfall profit tax. |
12 | (6) Net value of total sales from the property after |
13 | taxes are deducted. |
14 | (7) Interest owner's interest, expressed as a decimal |
15 | fraction, in production from paragraph (1). |
16 | (8) Interest owner's share of the total value of sales |
17 | prior to any tax deduction. |
18 | (9) Interest owner's share of the sales value less the |
19 | interest owner's share of the production and severance taxes, |
20 | as applicable. |
21 | Section 3.2. Accumulation of proceeds from production. |
22 | (a) General rule.--Unless otherwise requested, proceeds from |
23 | production of oil and gas may be accumulated and remitted to the |
24 | persons entitled thereto annually for the 12 months' |
25 | accumulation of proceeds totaling less than $100. |
26 | (b) Smaller amounts.-- |
27 | (1) Proceeds totaling $100 or less, but $25 or more |
28 | shall be remitted monthly, if requested in writing by the |
29 | person entitled to the proceeds. |
30 | (2) Amounts less than $10 shall be remitted annually if |
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1 | requested in writing by the person entitled to the proceeds. |
2 | (c) Notice required.--Before proceeds may be accumulated, |
3 | the payor shall provide notice to the person entitled to the |
4 | proceeds that there is an option to be paid monthly when the |
5 | accumulated proceeds exceed $10. The notice to the person shall |
6 | also provide directions for requesting monthly payment and shall |
7 | constitute notice to all heirs, successors, representatives and |
8 | assigns of the person. |
9 | (d) Owner to be paid.--Notwithstanding any other provision |
10 | of this section to the contrary, all accumulated proceeds shall |
11 | be paid to the owner thereof when production ceases or upon |
12 | relinquishment or transfer of the payment responsibility. |
13 | Section 3.3. Nonpayment of royalties and notice prerequisite to |
14 | judicial demand. |
15 | If a mineral lessor seeks relief for the failure of the |
16 | lessee to make timely or proper payment of royalties, the |
17 | mineral lessor must give the lessee written notice of the |
18 | failure as a prerequisite to a judicial demand for damages or |
19 | dissolution of the lease. |
20 | Section 3.4. Required response of lessee to notice. |
21 | The lessee shall have 30 days after receipt of the required |
22 | notice within which to pay the royalties due or to respond by |
23 | stating in writing a reasonable cause for nonpayment. The |
24 | payment or nonpayment of the royalties or stating or failing to |
25 | state a reasonable cause for nonpayment within this period shall |
26 | be subject to the remedies of dissolution and damages provided |
27 | in this act. |
28 | Section 3.5. Division orders, precedence of lease and penalties |
29 | for failure to pay royalties due. |
30 | (a) General rule.--A division order may not alter or amend |
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1 | the terms of the oil and gas lease. A division order that varies |
2 | the terms of the oil and gas lease is invalid to the extent of |
3 | the variance, and the terms of the oil and gas lease take |
4 | precedence. |
5 | (b) Effect.--The execution of a division order is not a |
6 | condition precedent to receiving payment from a lessee. The |
7 | lessee may not withhold royalty payments because the lessor has |
8 | not executed a division order. |
9 | (c) Penalty.-- |
10 | (1) If the lessee fails to pay royalties solely because |
11 | the lessor has not executed a division order, the court shall |
12 | award as damages double the amount of royalties due, legal |
13 | interest on that sum from the date due and reasonable |
14 | attorney fees. |
15 | (2) If the lessor fails to supply the name, address and |
16 | tax identification number upon written request of the lessee, |
17 | the lessee's failure to pay royalties shall be deemed |
18 | reasonable. |
19 | Section 3.6. Effect of payment in response to notice. |
20 | (a) General rule.--If the lessee pays the royalties due in |
21 | response to the required notice, the remedy of dissolution shall |
22 | be unavailable unless it is found that the original failure to |
23 | pay was fraudulent. |
24 | (b) Amount of recovery.-- |
25 | (1) The court may award as damages double the amount of |
26 | royalties due, interest on that sum from the date due and |
27 | reasonable attorney fees, provided the original failure to |
28 | pay royalties was either fraudulent or willful and without |
29 | reasonable grounds. |
30 | (2) In all other cases, including, but not limited to, |
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1 | mere oversight or neglect, damages shall be limited to |
2 | interest on the royalties computed from the date due and a |
3 | reasonable attorney fee if such interest is not paid within |
4 | 30 days of written demand therefor. |
5 | Section 3.7. Effect of nonpayment in response to notice or |
6 | failure to state cause. |
7 | If the lessee fails to pay royalties due or fails to inform |
8 | the lessor of a reasonable cause for failure to pay in response |
9 | to the required notice, the court may: |
10 | (1) award as damages double the amount of royalties due, |
11 | interest on that sum from the date due and reasonable |
12 | attorney fees regardless of the cause for the original |
13 | failure to pay royalties; and |
14 | (2) dissolve the lease. |
15 | Section 3.8. Dissolution not a favored remedy. |
16 | In a case where notice of failure to pay royalties is |
17 | required, dissolution should be granted only if the conduct of |
18 | the lessee, either in failing to pay originally or in failing to |
19 | pay in response to the required notice, is such that the remedy |
20 | of damages is inadequate to do justice. |
21 | Section 3.9. Dissolution may be partial or entire. |
22 | A mineral lease may be dissolved partially or in its |
23 | entirety. A decree of partial dissolution may be made applicable |
24 | to a specified portion of land, to a particular stratum or |
25 | strata or to a particular mineral or minerals. |
26 | Section 5. Section 4 of the act is amended to read: |
27 | [Section 4. This act shall take effect in 60 days.] |
28 | Section 4. Effective date. |
29 | This act shall take effect in 60 days. |
30 | Section 6. This act shall take effect in 60 days. |
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