Bill would standardize royalty reporting
WARREN – The number of horizontal mineral royalty checks is small relative to the number of concerns a local oil and gas attorney says he has been hearing from land owners about the deductions drillers take from the checks.
While the deductions may be justified or completely proper, often times there is no way for the landowner to know for certain because Ohio law, unlike other states, does not require the oil and gas companies to provide standardized royalty statements.
“Deductions are being taken that are not contemplated in the lease,” said Alan D. Wenger, a Youngstown attorney and chairman of the Oil & Gas Law Practice Group. “In Ohio, unlike some states, there is no standardization about what needs to be included. I believe it would be valuable for all sides, for the payor and the payee to have standardized reporting.”
Apparently state Rep. Jack Cera agrees. The Democrat from Bellaire in Belmont County, is sponsoring legislation, introduced in January, that sets out to standardize royalty reporting. While horizontal drilling has gotten off to a slow start in both Trumbull and Mahoning Counties, Belmont County has seen much quicker drilling results, likely triggering Cera’s involvement.
“It just seems to make sense that they would give reports to the land owners about the deductions,” Cera said Friday. “Right now, there’s no requirement, and there should be some accounting.”
A statewide drilling industry group, Ohio Oil and Gas Association, or OOGA, however, has voiced opposition to the bill.
“The concepts in HB 400 have been tried, unsuccessfully, in other states as they have caused a variety of class action lawsuits and a wide range of unintended issues,” OOGA spokesman Mike Chadsey said by email. “OOGA does not support HB 400.”
One point of contention may come with a provision in the bill that could trigger penalties if a driller fails to adhere to the rules.
A similar bill introduced in 2012 by then-Rep. Mark Okey, D-Carrollton, never made it to the floor for a vote. That bill was supported by state Rep. Sean O’Brien, D-Hubbard. It failed, O’Brien said, because of heavy GOP opposition.
Without new reporting legislation, Wenger said current law will apply, which does contain a provision stating that producers are required to keep records from wells for at least two years. It also would require, upon request of the recipient to report the volumes of gas produced and the price per thousand cubic feat the producer received. Penalties can be assessed for failure to comply, and must be enforced by the county prosecutor.
“It’s the only hook that a lessor has,” Wenger said. “It’s an old law. I am not aware of it ever being used, and most prosecutors that I know, this may not be real high on their radar. They are busy doing other things.”