Retired elderly landowners in Pennsylvania are being robbed of royalties from oil and gas developed on their land as energy companies withhold nearly 90 percent of their shares for unspecified expenses, reports ProPublica.
Reporter Abrahm Lustgartnet of ProPublica spoke with Don Feusner who has a dairy farm on 370 acres in northern Pennsylvania. When he retired at age 60, Feusner hoped to live off the money from natural gas drilling on his land down into the Marcellus shale.
In December 2012, he received a monthly check for his share from Chesapeake Energy for $8,506. In April, that check dropped to just $1,690. The company withheld nearly 90 percent of the check to cover their own unspecified “gathering” expenses.
“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.”
Despite a report from the Associated Press in January that royalty payments in Pennsylvania alone could top $1.2 billion in 2012, the profit bubble appears to have burst.
After pouring over lease agreements, government documents and thousands of court papers, Lustgartnet found that underpayments are common. Some landowners, in fact, weren’t being paid anything at all.
Law experts told ProPublica that energy companies are adept at accounting and business arrangements that allow them to skim profit off the sale of resources while increasing the expenses charged to the landowners. Fine print in the leases allow for this expense gouging, but many landowners didn’t realize what they were signing.
Attorney’s representing Pennsylvania landowners say their clients’ leases don’t even allow for them to audit gas companies to verify the accounting.
If a landowner questions an expense, the company will be tight-lipped about the details.
“To find out how the calculation is done, you may well have to file a lawsuit and get it through discovery,” said Owen Anderson, an expert on royalty disputes and the Eugene Kuntz Chair in Oil, Gas & Natural Resources at the University of Oklahoma College of Law. “I’m not aware of any state that requires that level of disclosure.”
Under other circumstances, the expenses charges are explicitly prohibited in the lease, like deducting expenses for transporting and processing natural gas. Other companies keep services off the books, hiding the full value of the resources from landowners.
Without regulatory oversight, landowners are at loss to protect themselves.
“They basically are daring you to sue them,” said Aaron Hovan, an attorney in Tunkhannock, Pa., who represents 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.”