With the current slowdown in the oil and gas industry in Ohio, many landowners have been seeing smaller royalty payments. Some have reached out to Ohio Farm Bureau, saying their royalty payments are too low and questioning deductions the oil and gas companies have made.
“Ohio Farm Bureau has been working with landowners. Deciphering royalty payments and determining their accuracy is difficult because the complex formulas and sales transactions used to calculate payments for every contract are different,” said Dale Arnold, OFBF’s director of energy, utility and local government policy.
What one landowner receives in royalties could be drastically different than what a neighbor receives. A major problem is that landowners don’t have access to the company’s data used to calculate the payments.
“It’s like having a sealed clock and trying to figure out how it works but you can’t because you can’t see the internal mechanisms,” said Chris White of White Law Office in Millersburg. His firm did a presentation about royalty payments to OFBF’s state policy development committee. County Farm Bureaus have been developing policy that calls for making the data more accessible to landowners.
Landowners have good reason to be concerned when their royalties drop without explanation, White said. Last December the firm had a client who was sent a form letter from an oil and gas company saying it had improperly calculated royalties and wouldn’t be issuing any checks until the amount of overpayment was reached. The law firm sent letters demanding the royalty payments, which rose to more than $200,000 by August. In September the company sent a second form letter saying it had made an error. Included was the monthly royalty payment and a reimbursement of about $140,000 for improper deductions.
“This all leads to the question of what’s going on but we don’t know because we can’t see the internal processes made to calculate those payments. It could be legitimate clerical errors because there are a lot of details to keep track of,” White said.
Landowners who have contracts that allow audits of their royalty payments can do an audit but at their own expense. Tracing oil and gas from the wellhead to the point of sale can take up to half a year and cost tens of thousands of dollars.
“It’s costly and risky and you’re going up against an 800-pound gorilla who is well funded and has all the time in the world,” White said.
But that doesn’t mean landowners shouldn’t take that risk, he said. Challenging a company over its compensation payments and winning in court can help set precedent that landowners may not be receiving what they are due, he said.
“Individual landowners investing resources and working through good legal counsel to get things done with their lease is the first step,” Arnold said. “Sharing results and identifying trends using data from a number of audits is needed.”
Ohio Farm Bureau has been keeping the attorney general’s office apprised of member concerns, but the government is not allowed to interfere with private contracts. The attorney general, however, could investigate if a pattern of wrongdoing is established through a series of audits and court cases.
Oil, gas company files for bankruptcy
Landowners in eastern Ohio who signed leases with Atlas Resource Partners have been wondering what their status is after receiving bankruptcy notices from the company. In July Atlas Resource Partners filed for bankruptcy protection. All leases are being managed under a holding company in accordance with the company’s bankruptcy reorganization plan.
“Current legal analysis shows calls for bringing those leases out of bankruptcy, and the bankruptcy judge will have to make a decision on accepting and executing a final reorganization plan. For now, landowners should continue to monitor the situation by saving any material sent by the company,” said Dale Arnold, OFBF’s director of energy, utility and local government policy.
While lease transfers and royalty payments will be addressed long term through the reorganization plan, costs for local infrastructure maintenance and repairs are still a concern. Arnold suggested landowners contact the holding company identified in the reorganization plan to find out who is responsible for local maintenance, as well as determine what continued upkeep and repairs will be accomplished during reorganization.