Natural gas royalty revision leaves Pa. family paying $5,700

Russ Forba opened his natural gas royalty statement on Monday and got a bitter surprise.

Mr. Forba was featured in a Post-Gazette article on Sunday describing nine months when Chesapeake Energy Corp. calculated that the costs of piping and marketing the Marcellus Shale gas extracted from beneath his family’s northeastern Pennsylvania farm exceeded — by $112,000 — the family’s share of the gas sales.

The family received no checks from Chesapeake during those months, when the company sold more than 2 billion cubic feet of gas from under the farm, but the Oklahoma-based oil and gas operator assured the family it had zeroed out the negative balance.

The company said it is its practice not to use past costs in such cases to offset future royalties and, until Monday, it had applied that policy to the Forba family.

But the monthly statement Mr. Forba opened this week showed that Chesapeake had revised down the selling price and revised up the post-production expenses from April 2015, a month when the family already received no royalty because costs outweighed sales.

Now, Chesapeake reduced his family’s current royalty by $5,700 to recover those costs.

“Basically, we are paying for them to take gas from underneath our property for the month of April 2015,” Mr. Forba said. “It is exactly what they said they would not do.”

A Chesapeake spokeswoman said the company is continuing to look into the matter and cannot provide further comment.

The prevalence and size of royalty deductions for post-production costs have outraged landowners, led to calls to strengthen the state’s minimum royalty law and prompted both private and public lawsuits.

Many natural gas leases, including Mr. Forba’s, allow for some cost-sharing with landowners. Industry representatives have said any state law that tried to interfere with those contracts would be unconstitutional.

Mr. Forba only connected the new deductions to a money-losing period two years ago because he keeps detailed records. His notes are based, in part, on documents that are not normally sent to royalty owners unless they specifically request them from the company.

That makes him wonder how many other people are in the same situation and don’t know it.

“They might correct mine, because I brought it to their attention,” he said. “They won’t correct everybody’s.”

Laura Legere:

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