Pennsylvania residents leasing land the fracking companies report far less payment than they had been promised.
“They said you’re going to be a millionaire in a couple of years, but none of that has happened,” said Don Feusner, an owner of a dairy cattle farm in Northern Pennsylvania. “I guess we’re expected to just take whatever they want to give us.”
Like many landowners in Pennsylvania, Feusner was promised generous royalties from the natural gas wells on his farm. ProPublica reports that the issue has become a widespread problem, not only in Pennsylvania, but across the United States. Oil and gas companies appear to be withholding billions of dollars in royalties owed to landowners like Feusner who agreed to lease land for fracking operations.
Fracking remains a controversial method of natural gas extraction, but as environmental and community groups continue to push for more regulations, the industry continues to rake in record profits in North Dakota, Pennsylvania and other communities where drilling has been allowed to move forward.
The American Enterprise Institute reports that in 2011, gas companies produced 8,500,983 million cubic feet of natural gas from shale gas wells with an estimated value of $36 billion. As the industry continues to grow, the fracking windfall has been advertised as a boost for many economically depressed communities that would enjoy news jobs and royalties for landowners who lease their land to fracking companies. For many landowners, big promises have led to big let-downs when companies pay far less than initially stipulated.
In Pennsylvania, royalties are stipulated in the Guaranteed Minimum Royalty Act of 1979, which guarantees that landowners receive at least 12.5 percent of the profits from the sale of any minerals, oil or natural gas extracted for their land. According to the law, if the royalties drop below this figure, a lease becomes invalid.
ProPublica reports that Feusner could be one of many shorted 90 percent of the royalties he is owed. Here’s what happened to him so far:
After finding major deposits of natural gas on his property, Chesapeake signed an agreement with Feusner, allowing the company to drill two wells that were projected to yield tens of millions of cubic feet of natural gas. At first, the company appeared to make good on its offer, sending him a check for $8,506 last December for one month’s share of the gas.
Although the company continued to extract roughly the same amount of gas in the coming months, Feusner was disappointed to find in April that he was being paid just $1,690.
Other Pennsylvania residents have reported similar problems in recent months. Janet Geiger told NPR in June that she has been receiving payments far less than promised. She and her husband used to get checks for $300 or $400 a month. In May, the check was $39, in March they received nothing at all.
“I made three phone calls to Oklahoma City before they finally told me, ‘We never sent you a check. We hadn’t sold the gas. We didn’t have the money.’ What bothers me is that I’m being cheated. And I want that to change,” Geiger said.
What’s the root of the problem? Some say that the industry could be cooking the books and underreporting gas extraction to keep royalty payments artificially low.
“To find out how the calculation is done, you may well have to file a lawsuit and get it through discovery,” said Owen Anderson, the Eugene Kuntz Chair in Oil, Gas and Natural Resources at the University of Oklahoma College of Law, and an expert on royalty disputes. “I’m not aware of any state that requires that level of disclosure.”
A spokesman for the Department of Interior’s Office of Natural Resources Revenue says that over the last three decades, the government has recouped more than $4 billion in unpaid fees from fracking operations on public lands.
Consumer advocacy groups say that leaseholders need to stay well informed and immediately report problems. “It’s a business arrangement,” says Jackie Root, the president of the Pennsylvania Chapter of the National Association of Royalty Owners. “You need to watch your business partner. A lot of people don’t understand their royalty checks.”
“We don’t normally call out a company publicly, but I don’t think it’s any secret. Chesapeake is known for being unscrupulous,” Root says.