Landowners Vs. Gas Drillers Comes To Top Pa. Court
HARRISBURG, Pa. (AP) - Pennsylvania landowners who want to snatch a better deal from natural gas companies hoping to drill into their ground and the potentially lucrative Marcellus Shale formation beneath it will get the ear of the state's highest court.
Wednesday's oral arguments in front of the state Supreme Court are certain to be watched closely for its impact on one of Pennsylvania's biggest economic opportunities and environmental challenges in decades.
For exploration companies with offices from Calgary to Canonsburg, the decision could either bring a huge sigh of relief or the havoc of renegotiating land leases across the state, possibly throwing the entire gas industry into chaos.
The fact that the court moved quickly to hear the case - and resolve a burgeoning number of complaints in state and federal courts - demonstrates the seriousness of the matter.
"By its actions, I think the court recognizes that this really is an extraordinary issue for Pennsylvania and it's critically important that it is resolved,'' said David Fine, a Harrisburgbased lawyer representing Elex- Co Land Services Inc. and Southwestern Energy Production Co.
To some extent, justices will hear plaintiffs' attorneys tell a story of big corporations taking advantage of unsuspecting landowners, paying them a fraction of the upfront per-acre leasing fee that they later paid to other landowners as competition in the land rush intensified.
"They didn't know Marcellus Shale from a hole in the wall and they feel the gas companies came in and got them to sell away the rights to their property,'' said attorney Laurence M. Kelly, who is representing Susquehanna County landowner Herbert Kilmer and his family.
The real legal question will be whether some tens of thousands of leases were never valid because they violate a state law that guarantees landowners a minimum one-eighth royalty from the production of oil and gas on their land.
The lawsuits are just the latest sign that Pennsylvania's laws governing mineral rights and environmental protection are lagging behind the large, modernday industry presence that has descended here.
Dozens of exploration companies and contractors have flocked here since early 2008 from as far away as Houston, Denver, and Calgary, Alberta, in a rush to lock up land rights over the thickest portions of the shale. That rush has eased somewhat since the recession drove down natural gas prices - but the legal disputes have not.
By Fine's estimate, more than 70 lawsuits have been filed in federal and state courts by plaintiffs seeking a judgment that the leases they signed were never valid.
In general, the leases in question give the exploration company the right to subtract certain costs - such as taxes, assessments or transportation - before paying the 12.5 percent royalty. That violates the law, plaintiffs say.
The law, however, is silent on the meaning of "royalty'' and whether it is determined before or after those expenses.
Fine and industry officials say it is standard language in leases to deduct those costs - a contention disputed by landowner advocates in Pennsylvania and elsewhere.
But judicial decisions in two of the cases raised the prospect of a myriad of different legal opinions.
In Susquehanna County, the judge in the Kilmer vs. ElexCo case handed the companies an initial victory, saying the law does not specifically prohibit the subtraction of costs. Kilmer has appealed to state Superior Court.
Separately, a federal judge in Scranton hearing a case against Cabot Oil & Gas Corp. denied a motion to dismiss the case, saying the law's silence does not necessarily mean the costs can be legally deducted.
Fine decided to ask the state Supreme Court to take up Kilmer vs. Elexco immediately, and effectively settle the matter for everyone.
Still, the high court's decision could create a new kind of chaos. Records of oil and gas leases dating back to the royalty law of 1979 are kept in county courthouses, often in arcane filing systems, making it nearly impossible to know how many landowners and leases are potentially affected.