http://www.philly.com/...
Thousands of landowners are receiving far less money than they were promised by energy companies to drill their properties. Some are being paid almost nothing.
Note: No environments were hurt during the writing of this article about the money implications of the fracking industry. Of course, if an industry acts this way about royalty payments how can it be trusted at all?
Don Feusner ran dairy cattle on his 370-acre slice of northern Pennsylvania until he could no longer turn a profit by farming. Then, at age 60, he sold all but a few Angus and aimed for a comfortable retirement on money from drilling his land for natural gas instead.
It seemed promising. Two wells drilled on his lease hit as sweet a spot as the Marcellus shale could offer – tens of millions of cubic feet of natural gas gushed forth. Last December, he received a check for $8,506 for a month’s share of the gas.
Then one day in April, Feusner ripped open his royalty envelope to find that while his wells were still producing the same amount of gas, the gusher of cash had slowed. His eyes cascaded down the page to his monthly balance at the bottom: $1,690.
Chesapeake Energy, the company that drilled his wells, was withholding almost 90 percent of Feusner’s share of the income to cover unspecified “gathering” expenses and it wasn’t explaining why.
“They said you’re going to be a millionaire in a couple of years, but none of that has happened,” Feusner said. “I guess we’re expected to just take whatever they want to give us.”
People are owed royalties, or a cut of what the drilling company takes in resources off of their lands.
Mr. Feusner’s experience is quite common, as the drilling companies have been given carte blanche to (legitimately) rape (financially, anyway) and pillage.
Energy companies are using complex accounting formulas, intentional obfuscation, and obscure contract language to do to landowners and the federal government what they have been permitted to do to the water supplies and to the bedrock.
In many cases, auditors cannot even determine what legitimate expenses are for these companies, when they deduct “expenses” from royalty payments.
Much of this horseshit chicanery is legal, having been rubberstamped by state governments and folks like Tom Corbett in the Keystone State.
But some companies deduct expenses for transporting and processing natural gas, even when leases contain clauses explicitly prohibiting such deductions. In other cases, according to court files and documents obtained by ProPublica, they withhold money without explanation for other, unauthorized expenses, and without telling landowners that the money is being withheld.
In addition, to keeping royalties low, companies sometimes will often set up subsidiaries or partnership arrangements which allow them to sell their captured oil and gas at reduced prices, only to recoup the full value of the resources when their subsidiaries resell it. Of course, in these cases the royalty payments are based on the low dollars in the initial transaction.
The feds at least have money and some rules on their side, but the individual homeowner has very little protection, and is often dared to sue by the offending company.
Of course the standard line is that the energy company’s primary duty is to its shareholders to maximize their holdings, blah blah blah.
To obfuscate further, gas flows up through a wellhead on the typical private property, and may make several turns to pass a meter that measures its volume. It then gets commingled as it feeds into larger pipes from other pipeline wells, in a process called “gathering”.
Each section of pipeline is often owned and managed by a different company. These companies buy the gas from the original energy company, but conveniently have no accountability to the landowner. They operate with minimal regulatory oversight, and contract directly with the extraction company, with terms that are often private and left unknown.
As in many royalty disputes, it is not clear exactly which point of sale is the one on which Feusner’s payments should be based – the last sale onto the open market or earlier changes in custody. It’s also unclear whether the expenses being charged to Feusner are incurred before or after that point of sale, or what processes fall under the term “gathering.” Conveniently, definitions of that term vary, depending on who is asked.
Making matters more complicated, the rights to the gas itself are often split into shares, sometimes among as many as a half-dozen companies, and are frequently traded.
Feusner originally signed a lease with a small drilling company, which sold the rights to the lease to a larger company. Then that company sold a share of its rights in the lease to a Norwegian company, which now owns about a one-third interest in the gas produced from Feusner’s property.
Thus, Feusner receives royalties from several companies, which account for expenses separately. (Interestingly, in this case, the Norwegian company does not deduct expenses at all from Feusner’s royalties).
Feusner’s lease is typical in that he has no right to review the energy company’s contracts with its partners, or to verify sales figures that the company reports to him. Pennsylvania also has no laws that dictate at what point in the pipeline a sale price is set for royalty purposes, and what expenses are legit.
Many leases do not allow landowners to audit gas companies to verify their accounting. Even landowners allowed to conduct such audits could have to shell out tens of thousands of dollars to do so.
When audits turn up discrepancies, attorneys say, many Pennsylvania leases require landowners to submit to arbitration – another exhaustive process that can cost tens of thousands of dollars. Arbitration clauses can also make it more difficult for landowners to join class action suits in which individuals can pool their resources and gain enough leverage to take on the industry.
“They basically are daring you to sue them,” said Aaron Hovan, an attorney in Tunkhannock, Pa., representing landowners who have royalty concerns. “And you need to have a really good case to go through all of that, and then you could definitely lose.”
All of these hurdles have to be cleared within Pennsylvania’s four-year statute of limitations. Landowners who realize too late that they have been underpaid for years – or who inherit a lease from an ailing parent who never bothered to check their statements – are simply out of luck.
AND even if an energy company is found liable in Pennsy, it only has to make good on the back royalties. There is no interest owed, and almost never punitive damages owed.
It apparently is their business model to operate this way, daring people to sue them.
Even the individual landowners are not reaping the riches from this hideous fiasco we call fracking. It is hurting everybody.
Frack here and frack now, baby!!!
(Please excuse any typos, or lack of comment interaction. This was done on the fly, like a royalty decision by a fracking company; and I am away for the afternoon.)