Shale Gas Was Going To Make Them Rich; Then The Checks Arrived
Lynne and Bill Seligman thought they were protecting themselves in 2008 when they agreed to allow an Oklahoma company to explore for natural gas under their 91-acre Sullivan County, Pa., farm. They even paid a lawyer to help negotiate the lease.
But since Chesapeake Energy Co. drilled a well to capture gas from the rich Marcellus Shale formation deep under that property, the Seligmans' gas income has shrunk dramatically – and not just because production declined or gas prices fell. "I just feel they cheated us," said Lynne Seligman, a retired nursing-home consultant. "They made us promises they didn't fulfill, and I guess that's what really irritates me."
Chesapeake has cut royalty payments to many like the Seligmans, subtracting "post-production costs" from income the landowners said they were promised under the state's Guaranteed Minimum Royalty Act of 1979. The law provides that owners of mineral rights receive a minimum one-eighth share, or 12.5 percent, of the sale price of their oil and gas.
Many Marcellus producers began to deduct post-production costs after the Pennsylvania Supreme Court sanctioned the practice in 2010. But Chesapeake, the state's largest producer, has been the most aggressive about billing landowners for the costs. Last year, Chesapeake reduced the Seligmans' $317.57 royalty share for April and May by 90 percent, mailing the Kennett Square family a check for $30.96 for the two months. The deductions were attributed to the costs of gathering, compressing, and transporting the gas.
Other disillusioned landowners say Chesapeake has reduced royalty payments below zero, essentially docking them for the gas produced on their properties. Russ Forba, whose siblings share ownership of a large family property in Wyoming County, said Chesapeake assessed them "negative revenue" for 10 months during the past two years, and estimated that the company has deducted $1.5 million from their royalty payments since its wells began producing in 2014. The most recent check, for production in August and September, amounted to $2,400, a 96 percent reduction from the gross royalty of $55,000, Forba said.
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