Watch the video: Gateway Royalty co-founder and president Chris Oldham discusses how Ohio House Bill 152 will hurt mineral owners.
Less royalties, fewer protections for mineral owners
How does HB152 hurt landowners?
House Bill 152 aims to revise the state law governing how mineral owners are forced into pooled units by oil and gas companies. If this bill passes, the results would give more power to oil and gas companies, enabling them to force Ohio landowners to hand over their minerals for less than fair market value.
Based on recent versions of the bill, key negatives for mineral owners include:
Loopholes for companiesDoes not account for clever tactics operators can use to pay mineral owners less in royalties by deducting costs, such as selling oil and gas to a marketing affiliate or adding a “market enhancement” clause to a gross proceeds lease.
No bonus paymentsMineral owners will not be paid a bonus when they are force pooled into a unit.
Low royalty rateSets a royalty rate of 12.5% for all forced-pool unleased mineral owners. The norm in recent years is in the range of 16-20%.
More forced poolingAllows an oil and gas producer to submit an application for unit operation when only 65% of the acres in the proposed unit are under lease. That means 35% of acres can be forced into the unit.
Tipping the scales of power
What needs to change in HB 152?
The only way a mineral owner can be sure no costs will be deducted from their royalties is for the lease to say royalties will be on “gross proceeds paid by the first unaffiliated third-party buyer in an arms-length transaction with no deduction of any costs.”
This one-sentence royalty provision prevents operators from taking costs through affiliate sales and market enhancements.
Make the bonus amount the average bonus for all acreage in the unit, excluding acreage held by production.
This would put the forced-pooled mineral owner on the same footing as the other mineral owners in the unit, large and small
Make the royalty percentage for force-pooled mineral owners the average of the rates leased owners in the unit are receiving.
This would treat forced-pooled mineral owners, both large and small, the same as their neighbors.
Instead of 65%, the oil and gas producer should be required to have at least 85% of the acreage under lease to submit an application for unit operation.
This will require the oil and gas producer to negotiate with more mineral owners and create a more accurate market value for calculating the royalty percentage and bonus amount.
A lower percentage just allows producers to threaten holdouts with forced pooling if they don’t accept the bad terms demanded by the operator.
Take action for change
Updates from Gateway Royalty on HB 152
Ohio Department Of Natural Resources Unitization Orders Take Center Stage In Battle Over Ohio’s Forced Pooling Bill
Gateway Royalty wants to know how and why market enhancement clauses were inserted into the ODNR unitization orders.