Oil Industry Avoids Paying Landowners for Drilling Rights

Monday, August 19, 2013
Robert Douglas Lawler, CEO of Chesapeake Energy since June 17

One of the arguments for allowing oil and gas companies to expand drilling in the United States has been that many of the new wells would be on private property, which meant individual Americans stood to profit from new fossil-fuel explorations.


But oftentimes companies have gotten away with not paying landowners the full royalties to which they’re entitled, according to ProPublica.


“From Pennsylvania to North Dakota, a powerful argument for allowing extensive new drilling has been that royalty payments would enrich local landowners, lifting the economies of heartland and rural America,” Abrahm Lustgarten wrote for the investigative news website. “But manipulation of costs and other data by oil companies is keeping billions of dollars in royalties out of the hands of private and government landholders.”


The industry gets away with underpaying property owners by using “complex accounting and business arrangements” that allow it to keep more of the profits.


In some cases, landowners failed to read all the fine print of the contracts they signed that allow drillers to deduct expenses related to drilling or maintaining wells from the royalties owed.


In other cases the drilling companies sell the oil and gas to their own subsidiaries at reduced value and then resell it at a higher price. The property owner’s royalty is based not of the second, more profitable sale, but on the first transaction.


In northern Pennsylvania, rancher Don Feusner decided to put some of his 370 acres to use other than feeding dairy cows. He signed a deal with Chesapeake Energy to allow the sinking of two natural gas wells. At first the decision seemed like a good one, as a single month’s royalties provided him with more than $8,500.


But over time the check amounts began to shrink in size, down to $1,690 a month, even though Chesapeake was still extracting the same amount of gas every 30 days.


“They said you’re going to be a millionaire in a couple of years, but none of that has happened,” Feusner told ProPublica. “I guess we’re expected to just take whatever they want to give us.”

-Noel Brinkerhoff


To Learn More:

Unfair Share: How Oil and Gas Drillers Avoid Paying Royalties (by Abrahm Lustgarten, ProPublica)

Chesapeake Energy Accused of Scamming Land Owners to Grab Oil and Gas Leases (by Noel Brinkerhoff, AllGov)


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