Royalty owners hope for increased reporting
After a recent session on valuing properties with oil and gas development, Linn Willers, a three-time former president of the national chapter of the National Association of Royalty Owners, described how Pennsylvania differs from other states.
The Pennsylvania government only makes six-month production and waste data available. Willers pointed out the Utah Division of Oil, Gas and Mining, whose website lets users download a variety of drilling logs and monthly production reports for wells in that state.
Willers is now vice president of Wells Fargo’s oil, gas and mineral management division, which helps clients manage mineral rights in 38 states and Canada, he said. He thinks Utah is the best, but New Mexico, Wyoming and Louisiana also have more data available for public download than Pennsylvania, he said.
“The Marcellus is still in its infancy,” he said, explaining why the state offers sparse production data compared to others, despite its rise to the No. 2 gas-producing state over the past eight years.
Such data would be useful to royalty owners attending the fourth conference of the Pennsylvania chapter of the National Association of Royalty Owners. At the appraisal session, Richard J. Miller, who runs a California-based oil and gas appraisal firm, told attendees about the value of a professional appraisal versus “lunch counter gossip.”
When appraising a leased property, some argue that twice-a-year production data gathered by the state Department of Environmental Protection can be used as an analogy for nearby properties with leases but no development, he said. But a lack of monthly production, pressure and other well performance data makes DEP’s data unsuitable for gauging how much oil and gas rights are worth in nearby properties.
“We need to get to the point where we could do more in terms of published and accessible data,” Miller said.
Several royalty owners reacted with surprise when they heard a presentation from Matt Henderson, shale gas asset manager with Penn State’s Marcellus Center for Outreach and Research, about how little DEP data are available online, compared to other states.
Oil and gas companies submit these data to the state, which does not vet them and frequently updates them without notice, as stated on a disclaimer on its oil and gas reporting website.
“You could download the data five days in a row and get five different answers,” Henderson said.
Royalty owners get monthly statements showing volume of gas sold, but this doesn’t account for the company intentionally choking back a well’s production.
DEP eventually hopes to use its new oil and gas mapping tool to consolidate production, waste, violation and other information all in one Web tool, Henderson said. Eventually, the department could move to collecting more frequent production data.
“It’s going to take some legislative action,” Henderson told attendees last week in State College. Such efforts “are not at the top of legislators’ lists right now,” he said.
Efforts in Harrisburg instead have been focused on House Bill 1684, which would limit gas companies’ ability to deduct post-production costs from royalty payments that would put them below the state-mandated 12.5 percent. NARO members expect the House will vote on the bill in the next few weeks.
NARO was instrumental in promoting the bill, said attorney Robert Burnett, who volunteers on the chapter’s legislative committee. Asked how much relief the bill in its current form would provide to royalty owners, Burnett said it will stop royalty payments from being driven below 12.5 percent but will not likely stop companies from deducting money from royalty owners with higher percentages in their leases.
“It will not eliminate post-production deductions, but it’s the first step toward mitigating the pain of royalty owners,” Burnett said.
As the bill inches forward, production reporting requirements is one issue the organization will likely take up, chapter President Jackie Root told the crowd as the conference drew to a close.
“As we’re proposing legislation, we’re not reinventing the wheel,” she said. “We’re going to look at other states.”
Rep. Tina Pickett, R-110, Towanda, is sponsoring House Bill 1709, which would require monthly reporting by operators.
“We need to support that because six-month reporting is not adequate,” Root said.