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Proposed Royalty Legislation

By: Emens & Wolper law Firm & Heidi R. Kemp & Cody Smith

“Education is the most powerful weapon which you can use to change the world.” Nelson Mandela. Okay, maybe that’s a bit dramatic – we aren’t trying to change the world. But the value of education cannot be overstated even when “attempting” to read oil and gas royalty statements.

Since the burden is primarily on the person receiving royalties to police the oil and gas company – i.e. make sure the company is paying what they are supposed to pay – royalty recipients should diligently monitor and review their royalty statements. This can be difficult for a number of reasons. One of those reasons is that there is no current requirement for what information has to be included on the royalty statements.

It is not uncommon for oil and gas companies’ royalty statements to appear very different – both in format and in the information provided. Even with the most comprehensive royalty statements, often landowners do not have the information needed to adequately review their royalty payments.

Ohio Representative, Jack Cera (D), recently proposed legislation in the Ohio House which would require oil and gas companies to provide royalty owners with additional information when making royalty payments to such owner. See Ohio House Bill 55, 133rd General Assembly, which would revise Ohio Revised Code Section 1509.30. Currently, Ohio Revised Code Section 1509.30 only requires gas producers to supply royalty owners with: “(A) The volume of natural gas for which he was or is being paid for the most recent period in his contract with the owner, and for any other previous periods within two years of the date of production for which the owner has not already given him such a report; (B) The price per thousand cubic feet paid to the holder for such gas; (C) The volume of natural gas which was shown to have passed through the owner’s meter for the field containing the holder’s well.”

The bill’s summary page indicates the amendment would have the effect of:

  1. Applying reporting requirements to owners of oil and gas wells rather than only to owners of gas wells as in the current law.
  2. Revising and expanding the current information that oil and gas producers are required to report to the holder of a royalty interest in a well.
  3. Requiring oil and gas producers to report the information, above, when royalty payments are made to the holder of a royalty interest in a well instead of requiring the holder to request such information.
  4. Authorizing the holder of a royalty interest in a well to bring a civil lawsuit against an oil and gas producer who fails to report the information, above.
  5. Providing penalties to any oil and gas producer who violates the reporting requirements of the amended law.

At least two Ohio House Republicans have co-sponsored Ohio House Bill 55. The full text of the bill and the summary thereof may be found at https://www.legislature.ohio.gov/legislation/legislation-documents?id=GA133-HB-55.

Whether this Bill will be passed remains to be seen. And, it still will not eliminate every concern landowners may have when trying to review their royalty statements. As always, the best recommendation is to have your royalty statements reviewed and analyzed by competent professionals.