American Oil and Gas Reporter - November 2016 - 28

State Legislative Report

Industry Able To Maintain Status Quo
WEXFORD, PA.-The Pennsylvania
Independent Oil & Gas Association was
successful in preserving the status quo for
the industry during the 2016 session of the
Pennsylvania General Assembly. Those efforts in one case went to the very end of
the scheduled legislative session at the end
of October, according to PIOGA President
& Executive Director Dan Weaver.
Weaver notes that the law authorizing
Pennsylvania's call-before-excavating
program was set to expire on Dec. 31, and
PIOGA had objections to far-reaching
changes to PA One Call contained in SB
1235. A particular concern, he says, was
an end to a long-standing exception to
mandatory participation by owners of oil
and gas gathering lines.
"The One Call fee structure makes participation unaffordable for many of our
conventional operators," Weaver explains.
"We were able to convince lawmakers in
the final days of their session-when
'something' had to happen-to pass a version of SB 215 that simply extended the
sunset date until the end of 2017. The extra year will provide breathing room so the
different parties can work out changes to
the program that we hope everyone can
live with."
Minimum Royalties
Meanwhile, an emotional issue that had
garnered a large amount of media attention failed to gain legislative traction as the
session wound down, PIOGA reports.
HB 1391 would have amended Pennsylvania's Guaranteed Minimum Royalty
Act to prohibit operators from deducting
post-production costs from royalty payments, including existing leases. The
Minimum Royalty Act sets a floor of 12.5
percent for royalties, but under the 2010
Pennsylvania Supreme Court decision
Kilmer v. Elexco, PIOGA says, royalty
payments may be calculated after subtracting post-production cost from sales prices.
The bill was introduced in response to
what many landowners considered exorbitant post-production deductions by one
operator, as well as substantial reductions
in royalty payments in general as a result
of sustained low prices for natural gas, PIOGA relates.
PIOGA opposed HB 1391, "which, in
essence, would have guaranteed the lessor a profit of at least 12.5 percent,"
Weaver says. "Oil and gas leases are
legally binding contracts that do not guarantee producers a profit. As mineral owners, leaseholders must recognize and
28 THE AMERICAN OIL & GAS REPORTER

share the potential risks and benefits that
accompany market conditions, and that
producers experience with every well
drilled and on all oil and natural gas produced."
He says PIOGA called on lawmakers
to focus instead on adopting policies to increase the use of natural gas and natural
gas liquids.
House leaders declined to bring HB
1391 to a floor vote as time ran out in the
session, but PIOGA cautions that the
matter is expected to be resurrected in
2017.
Maintain Status Quo
Looking back at the two-year session,
Weaver points to significant victories in
staving off a severance tax on unconventional natural gas and halting inappropriate new regulations affecting conventional oil and gas operations.
"The severance tax was a prominent
part of Governor Tom Wolf's budget
package in 2015 and again in 2016," he recalls. "We were able to demonstrate that
this tax would put Pennsylvania-produced natural gas at a huge competitive
disadvantage and that our industry already
contributed its fair share of taxes. We are
grateful to our allies in the legislature for
recognizing the inequity of a severance tax,
but unfortunately, this is another issue we

will fight again in 2017."
Weaver says PIOGA also was pleased
that industry supporters and legislators
came together to stop new Department of
Environmental Protection Chapter 78 regulations for conventional wells from taking effect. State regulators brushed aside
industry objections to the cost and appropriateness of the regulations, as well as the
legality of the process followed by DEP,
he opines, "but the general assembly
heard the conventional industry's message
loud and clear."
The enactment of Act 52 of 2016
erased the new Chapter 78 regulations governing surface operations and specified that
any future rule making for conventional
operations must be undertaken separately from those aimed at unconventional operations (AOGR, July 2016, pg. 30). The
new law also creates the Pennsylvania
Grade Crude Development Advisory
Council, which is to guide DEP in developing new rules and to undertake other initiatives aimed at boosting the conventional industry.
The Chapter 78a regulations for unconventional operations took effect in mid-October (see related story, page 105).
"The result of this legislative session
was that we were able to essentially keep
things unchanged," Weaver says. "In this
case, that is not a bad thing."
❒

Ohio Supreme Court Decision
Getting Mixed Industry Reviews
COLUMBUS, OH.-The way Buckeye
State oil and gas producers feel about the
Ohio Supreme Court's Sept. 15 decision
in Corban v. Chesapeake Exploration
LLC, et al., largely hinges on those companies' leasing practices, explains Webb
Vorys, partner at Vorys, Sater, Seymour and
Pease LLP, which is counsel for the Ohio
Oil & Gas Association.
This is because the Corban case clarifies some ambiguities in the state's Dormant Minerals Act (DMA) of 1989, Vorys
observes. That law establishes the conditions under which a dormant, severed mineral interest may transfer to a property's
surface owner. In Corban, the severed mineral interest owner and several producers
argued-and the Supreme Court agreed-that
such transfers were not automatic.
"Other producers and interested parties

filed amicus briefs that wanted it to be selfexecuting," Vorys points out, because
"some people have leases with severed
mineral owners, while others took leases
with the surface owners under the assumption that the dormant minerals had merged
with the surface."
According to Vorys, the majority of
practitioners and operators who considered
the issue understood the 1989 DMA to be
self-executing, which also had been the
opinion of the state's 7th District Court of
Appeals. That also was consistent with case
law in other states with dormant mineral
statutes, which largely were crafted according to the same uniform model, he adds.
"Until the (Ohio) Supreme Court said
otherwise, people generally assumed the
SEE DECISION PAGE 33

American Oil and Gas Reporter - November 2016

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