Chesapeake says royalties not being cut to cover impact fees

October 16, 2013
This file photo shows a Range Resources drilling site in Hopewell Township - Photo by Scott Goldsmith

Chesapeake Energy has denied that it plans to deduct part of landowners’ royalties to cover state impact fees, despite some reports indicating that those deductions are outlined in their contracts.

Some Chesapeake leaseholders have unknowingly agreed to that language in their leases, according to published reports, even though companies are not permitted to deduct money from royalties for impact fees under the state’s Act 13.

“Chesapeake has not deducted impact fees from Pennsylvania royalty owners and believes it is in full compliance with Act 13,” said Gordon Pennoyer, director of external communications, in an emailed statement Wednesday.

Jackie Root, president of the Pennsylvania chapter of the National Royalty Owners Association, said she has seen one Chesapeake contract containing language for an impact fee deduction. Root said she doesn’t think that the language alone would create an issue until deductions are actually made, but “the problem is that the company lumps all their deductions together, and they don’t delineate between them.”

Root said that in Pennsylvania, companies cannot deduct taxes or state-imposed fees from royalties.

“The fact that the company went to the bother to add impact fees to the list of things they can deduct … my reaction to that is, well, they’re just going to make sure that they can take out whatever they possibly can,” Root said.

Patrick Creighton, spokesman for the Marcellus Shale Coalition, said in an emailed statement that he is “not aware of a single instance whereby a landowner has had these fees deducted from their royalty payments.”

Creighton said that while some leases may contain this language, “Act 13 clearly states that operators are not permitted to deduct impact fees from royalties. He added that provisions in Act 13 supersede any language in a lease, and the same is true for impact fees.

Range Resources, a natural gas drilling company that has a strong presence in Washington County, issued a statement that said, “Range, like all companies following the law in Pennsylvania, does not deduct impact fees from royalty owners.”

Range, like many drilling companies, deducts some post-production fees from royalty payments, usually for transportation, compression or gathering charges, according to the company’s website.

State Rep. Jesse White, D-Cecil, introduced a bill in June that would prevent landowners from paying a share of post-production fees. White said the impact fee was never designed to be a post-production cost.

He compared the process to a farmer selling wheat to Wonder Bread and then being charged for the transportation, preparation and packing of the bread. He added that landowners might not understand the “fine print” in a lease pertaining to post-production fees before signing.

“In order for people to make truly informed decisions about who to sign with, they should know those numbers up front,” White said. “My goal is to allow people that are signing leases to have the most information they possibly can up front so they can make the most informed decision possible for their particular situation.”

The Associated Press contributed to this report.

Emily Petsko joined the Observer-Reporter as a staff writer in June 2013. She graduated from Point Park University with a dual bachelor's degree in journalism and global cultural studies.

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