Last month more than 100 placard-waving residents of Bradford County stood in front of the county courthouse. They were madder than a room full of wet cats. It seems they were betrayed by men they trusted in the cruelest way; they fiddled with their royalties.
A typical swindle starts in the hospitable ambiance of someone's home. A pot of hot coffee on the kitchen table, cordial banter to break the ice with an affable landsman, and then a serious conversation about becoming immoderately rich requiring no more effort than signing a sheet of paper.
But likeability, apparent forthrightness, and establishing trust are the stock-in-trade of a conman, and these folks were about to be royally coned out of their royalties.
The landsman was expert at reading people and telling prospective lessors exactly what they wanted to hear.
Do you know, said the landsman, that you're sitting on top of a multi-million dollar deposit of gas? You could be a millionaire! That cinched the deal in as much time as it took the lessor to get a pen. We all make mistakes, but this one was trophy-sized.
“They sat at your kitchen table and they lied, they literally lied to you,” said David Moon, a resident of Bradford County. Can you believe a landsman would lie to get your signature on a gas lease? The gas companies believe it; it's in the lease:
“No representation or promise on behalf of either party shall be binding unless mutually agreed to in writing.” In effect, the landsman does the gas company's dirty work.
Then it got worse, much worse.
The irate citizens fuming in front of the courthouse were there to show support for House Bill 1684. This bill would guarantee the lessor 12.5 percent of gas revenue.
But how many read this Orwellian double-speak clause in their lease:
“Lessee shall deliver to the Lessor, 12.5 percent of all the hydrocarbons produced from the premises.”
“All,” that is, minus the costs of “gathering, transportation, compression, and other post-production costs.” What the right hand giveth, the left hand taketh. Ahh! There's the rub.
Moon said the gas company siphoned off $36,000 from his royalties last year. Next year he expects it to double. And the lease gives the gas company the right to take all Moon's royalty and more, yes, more than all.
“Our constituents have deductions up to 90 percent,” said Bradford County Commissioner Doug McLlinko. “We have seen checks come with zero payment [and] charges being billed to landowners for tens of thousands of dollars where a bill [was] sent to them without any royalty payments until it is paid in full.” Now that's hutzpah in neon lights.
Hence the boisterous gathering in front of the Bradford Courthouse voicing their support for HB 1684, a bill that would vouchsafe a minimum royalty of 12.5 percent.
Presumably the demonstrators hoped to be relieved of regrettably signed lease agreements by a retroactive or ex post facto law. But it is a hopeless hope.
An ex post facto law is one that changes rights legally acquired in transactions previously agreed upon. It is expressly disallowed in the U.S. Constitution under Article I.
In 2010, the game of legal up-man-ship between the lessors and the shalers began when the Pennsylvania Supreme Court upheld post-production charges: “Post-production costs are properly shared by royalty owners unless the lease expressly forbids them.”
So lessors boilerplated their royalties with a Market Enhancement Clause that “expressly forbids” parasitic post-production costs.
The shalers counter-punched by turning the Market Enhancement Clause on its head. To them the clause meant to permit post-production deductions. They reaffirmed their right to skim royalty payments down to a goose egg.
And so it goes.
There are four takeaways from this. First, the shalers are not your friends. They are here to make a buck whatever the cost to you, to your neighbors, or to the land. Second, trust should never be given, always earned. Third, never sign any document without a careful rereading---the next day. And fourth, you can't outsmart a shmarter.
Sincerely,
Bob Scroggins
New Milford, PA