Apportionment of Oil and Gas Royalties in Pennsylvania
Understanding how apportionment affects royalty payments
A landowner owns not only the surface but also the oil and gas rights to a tract of land covered by an oil and gas lease. The land is subdivided into one or more parcels, which are no longer owned by the one landowner. It could be that the landowner kept one tract and conveyed the other(s) or conveyed all of the tracts. It could also be that all of the tracts were devised by will. In addition, you may have a situation where an oil and gas lease is entered into that covers multiple tracts. Whatever the situation, there is not one tract of land subject to the oil and gas lease but multiple tracts and on one or more but not all of these tracts, the oil and gas company has a producing well or wells. As such, who gets the royalties? Does the owner or owners of the land upon which the well or wells is situated get all of the royalties or do the owners of the tracts that are all subject to the lease share in the royalties in proportion to the amount of acreage that they own?
In Pennsylvania, where you have multiple tracts subject to one lease, each owner should receive his or her share of the royalty as his or her share of the land bears to the whole tract covered by the lease. It does not matter on what acreage the well is situated. This law goes all the way back to the 1894 Pennsylvania Supreme Court case of Wettengel v. Gormley.
In Wettengel v. Gormley, James Gormley was, during his lifetime, the owner of three contiguous farms, containing together 600 acres. In July 1888, he entered into an oil lease covering all of the land. Gormley died in October 1890, and by his last will and testament, he gave one of these farms to each of his three children, making no mention of the lease, which included them all. The holder of the oil lease, had in the meantime, put down several oil producing wells. All of these wells happened to be on one of the farms which Gormley had devised. The question then was who was entitled to the royalty reserved by Gormley? Should it be divided between the three devisees in proportion to the acreage held by each or should it be paid to the holder of the acreage or the farm upon which the oil wells were located. The Pennsylvania Supreme Court held that where the three tracts of land were all subject to the same oil and gas lease and were devised respectfully to the owner’s three children, the royalties accruing under the lease were divisible among the three devisees regardless of the fact that all the wells were sunk on only one of the three tracts. In other words, “each should receive such share of the royalty as his or her share bears to the whole tract covered by the lease. It does not matter on what acre or hundred acres the wells may be situated.” Wettengel v. Gormley, 184 Pa. 354, 39 A. 57, 58 (1898) (confirming Wettengel v. Gormley, 160 Pa. 559, 28 A. 934 (1894).
The apportionment rule, as announced in Wettengel v. Gormley, is, however, subject to an important caveat. That is the rule when it is applied is subject to the provisions of the oil and gas lease. In other words, there may be provisions in the oil and gas lease that may change the application of the apportionment rule. For example, there may be an non-apportionment clause in the oil and gas lease or a provision in the oil and gas lease that provides that all oil and gas royalties are to be paid to the owner or owners of the particular tract or portion of land upon which the well is located. See Hildebrand v. EQT Production Company, 165 A.3d 969 (Pa. Super. 2017). Accordingly, if there is an apportionment issue, the oil and gas lease needs to be checked as it may change the application of the rule.
If you have an apportionment issue, please contact an oil and gas lawyer. We can help you.