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HB 453 Hurtful to Landowners

By Paul R. Yagelski, Esq.

Fiscal Code,which includes section 1610-E, will allow oil and gas companies to revive old leases thought to be expired

The PA House of Representatives passed the Fiscal Code, the budget bill, on July 27, 2017, which includes section 1610-E, that will allow oil and gas companies to revive old leases that were thought to have expired.

Under this section, an oil and gas Lessor shall be deemed to acknowledge that a period of non-production is a temporary cessation insufficient to terminate the lease and the Lessor waives his right to seek lease termination upon those grounds, if prior to claiming that the lease has terminated: (1) production is recommenced and the lessor accepts royalty payments.  Any first royalty payment after more than one year of inactivity is to be accompanied by an explanation that acceptance of an existing royalty payment constitutes acknowledgment of an existing lease or (2) the Operator, after notifying the Lessor of its intent to drill a new well and giving the Lessor 90 days to object, drills a new well under the lease.

There are a lot of old leases out there with onerous provisions or provisions that are just not very favorable to the landowner that can be revived through this process.  Once thought to be dead, these leases, like Lazarus, can now be resurrected.

Section 1610-E was stuck into the Fiscal Code at the last minute.  Something similar was done four years ago when a provision was inserted into Senate Bill 299 that allowed oil and gas companies to pool contiguous leases where there is no provision prohibiting pooling.  This undercut the bargaining power of those landowners who had no pooling provision in their leases.  As there was no pooling provision, the landowner could bargain for better terms.  Now again, the PA legislature is undercutting the landowner’s rights.

The text of Section 1610-E

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