Pennsylvania Ratification of Oil and Gas Lease by Nonparticipating Royalty Owner

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US-OG-112
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Description

A nonparticipating royalty owner ratifying an oil and gas lease is usually requested by a lessee to allow the nonparticipating royalty interest to be pooled under the terms of the lease (some jurisdictions, including Texas, do not allow a nonparticipating royalty interest owners interest to be pooled, without the owners consent). This form of ratification may also be used by a nonparticipating royalty owner to allow the owner to be included in a pooled unit in which he or she may not otherwise have been included.

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FAQ

To ?ratify? a lease means that the landowner and oil & gas producer, as current lessor and lessee of the land, agree (or re-agree) to the terms of the existing lease.

Mineral rights can be sold in any Pennsylvania county for anything from $500/acre to $5,000+/acre.

Is the money I receive from a gas lease taxable? Yes, the income is taxable and should be reported on PA Schedule E and Line 6 Rents, Royalties, Patents or Copyrights of the PA-40. Income paid under a gas lease is normally reported by the payer on...

The royalty percentage is usually 12.5% to 15% but can change based on regional regulations or negotiations. Types of Leases: There are different types of oil and gas leases, and they affect royalty calculations differently.

Many landowners signed leases with the statutory minimum royalty of 12.5 percent. This minimum royalty is guaranteed by Pennsylvania's Guaranteed Minimum Royalty Act (GMRA). Pursuant to the GMRA, an oil and gas lease is invalid unless it guarantees the landowner a production royalty of at least 12.5 percent.

Pennsylvania's Guaranteed Minimum Royalty Act of 1979 put the figure at 12.5 percent. But some leases allow drillers to share the costs of processing and transporting gas with landowners.

Royalty Clause There are two types of royalties, a net and a gross royalty. Normally, the oil and gas lease contains a net royalty. If the lease provides for a net royalty, this means that post-production deductions will be taken from the royalty.

Every oil and gas lease executed after 1979 must provide for a minimum royalty of 12.5 percent or it is unenforceable and invalid. HB 1391 simply clarifies the existing law by making sure the net royalty is not less than 12.5 percent.

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Pennsylvania Ratification of Oil and Gas Lease by Nonparticipating Royalty Owner