Pennsylvania nears end of investigation into whether drilling companies cheated landowners

MarketsAssociated Press

Pennsylvania state investigators are close to wrapping up an investigation into complaints that landowners in northeastern Pennsylvania are being cheated of royalties by natural gas companies exploring the Marcellus Shale, Attorney General Kathleen Kane said Tuesday.

Kane told the Senate Appropriations Committee that agents from the office's anti-trust and consumer protection divisions had conducted hundreds of interviews with landowners who had complaints. Agents then sorted through their lease paperwork to decide who may have been defrauded and those who may not have been, Kane said.

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Asked about it during the hearing by Sen. Lisa Baker, R-Luzerne, Kane did not say which natural gas company practices were being investigated, or what her office is planning to do.

"I can tell you that we're almost wrapping it up, and that it was a very thorough investigation," Kane said.

Baker called it a "significant concern" for many of her constituents who believe they are being scammed and have filed their own civil lawsuits. Royalty owners also have sought help, unsuccessfully, from the state Legislature to force drilling companies to provide more information about how they calculate royalties.

Sen. Eugene Yaw, R-Lycoming, asked Kane to investigate in early 2014. His office had been inundated with complaints about royalties, including cost deductions by Oklahoma City-based Chesapeake Energy so high that no royalties were paid, Yaw said at the time. In one case, a landowner complained that he was being billed, not paid, by the drilling company, Yaw said.

On Tuesday, Gov. Tom Wolf's policy secretary, John Hanger, said he believes a number of companies are using "abusive practices" to avoid paying royalties by deducting costs that are well beyond any reasonable interpretation of the leases.

"There are many, many examples that are have been shown to me, including some outright horror stories," Hanger said. "An elderly woman in Bradford County received a bill from the gas company, not a check, a bill for like over $100,000. It's outrageous when you get to that point."

The Marcellus Shale is the nation's largest-known natural gas reservoir. The rush to tap it began in earnest in 2008, transforming Pennsylvania from a drilling backwater into the nation's second-largest natural gas producer behind Texas in just seven years, thanks to 8,700 deep shale wells drilled since then. Billions of dollars are estimated to have been paid in royalties.