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Gas drilling royalties transforming lives

Gene J. Puskar/Associated Press

With royalties from a Range Resources gas well on his property, Shawn Georgetti has been able to buy newer farm equipment that’s bigger, faster, and more fuel-efficient.

By KEVIN BEGOS
Associated Press

PITTSBURGH – Private landowners are reaping billions of dollars in royalties each year from the boom in natural-gas drilling, transforming lives and livelihoods even as the windfall provides only a modest boost to the broader economy.

In Pennsylvania alone, royalty payments could top $1.2 billion for 2012, according to an Associated Press analysis that looked at state tax information, production records and estimates from the National Association of Royalty Owners.

For some landowners, the unexpected royalties have made a big difference.

“We used to have to put stuff on credit cards. It was basically living from paycheck to paycheck,” said Shawn Georgetti, who runs a family dairy farm in Avella, about 30 miles southwest of Pittsburgh.

Natural-gas production has boomed in many states over the past few years as advances in drilling opened up vast reserves buried in deep shale rock, such as the Marcellus formation in Pennsylvania and the Barnett in Texas.

Nationwide, the royalty owners association estimates, natural-gas royalties totaled $21 billion in 2010, the most recent year for which it has done a full analysis. Texas paid out the most in gas royalties that year, about $6.7 billion, followed by Wyoming at $2 billion and Alaska at $1.9 billion.

Exact estimates of natural-gas royalty payments aren’t possible because contracts and wholesale prices of gas vary, and specific tax information is private.

Some states release estimates of the total revenue collected for all royalties, and feedback on thousands of contracts has led the royalty owners association to conclude that the average royalty is 18.75 percent of gas production.

“Our fastest-growing state chapter is our Pennsylvania chapter, and we just formed a North Dakota chapter. We’ve seen a lot of new people, and new questions,” said Jerry Simmons, the director of the association, which was founded in 1980 and is based in Oklahoma.

Simmons said he hasn’t heard of anyone getting less than 12.5 percent, and that’s also the minimum rate set by law in Pennsylvania. Simmons knows of one contract in another state where the owner received 25 percent of production, but that’s unusual.

By comparison, a 10 to 25 percent range is similar to what a top recording artist might get in royalties from CD sales, while a novelist normally gets a 12.5 percent to 15 percent royalty on hardcover book sales.

Simmons added that for oil and natural gas “there is no industry standard,” since the royalty is often adjusted based on the per-acre signing bonus a landowner receives. While many people are lured by higher upfront bonuses, a higher royalty rate can generate more total income over the life of a well, which can stretch for 25 years.

Before Range Resources drilled a well on the family property in 2012, Georgetti said, he was stuck using 30-year-old equipment, with no way to upgrade without going seriously into debt.

“You don’t have that problem anymore. It’s a lot more fun to farm,” Georgetti said, since he has been able to buy newer equipment that’s bigger, faster and more fuel-efficient. The drilling hasn’t caused any problems for the farm, he said.

Range spokesman Matt Pitzarella said the Fort Worth, Texas-based company has paid “well over” $1 billion to Pennsylvania landowners, with most of that coming since 2008.

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