A change in how a state law is being interpreted is affecting royalties for Fayetteville Shale lease owners. However, efforts to fix the interpretation have been stalled in a Senate committee since mid-March.
Sen. Jonathan Dismang, who is on the Senate Agriculture, Forestry and Economic Development Committee, said Monday at the Searcy Regional Chamber of Commerce that he “made a motion” to pass House Bill 1656 “and it didn’t even get a second.” At the time, he didn’t know if the bill would run again, but it was amended Tuesday and re-referred to the committee, which met Thursday.
Dismang said the natural gas company Flywheel has essentially bought out most of the interest in the Fayetteville Shale area, and “they interpret contracts differently than anyone has ever interpreted them from the beginning of interpretation.”
Because of that, Dismang said, it looks to him like royalty owners are getting on average half the amount of royalties that they used to receive for mineral rights.
“They’re pulling the expenses out of the first 1/8th is what it amounts to,” he said. “Whereas, if you had a gross lease – historically you got paid on the gross – now they’re paying on the net, the first 1/8th of your lease. You may not feel it much now because there’s just not a whole lot happening, but one day soon that may matter a lot.”
Dismang said he believes that “as more natural gas gets utilized across the country because we are closing coal plants, natural gas prices are going to hopefully increase for the area.”
White County Judge Lisa Brown told the Citizen that her and her husband “have a producing well, several in our section, [and] this has been going on for years.”
“When the previous companies were paying us for the gas that came out, they used a formula and we got what our contracts said we would get,” Brown said. “Flywheel came in and has bought most of the assets from all the Fayetteville Shale and they’re deducting some expenses that the other companies didn’t and not disclosing it clearly.”
She said HB1656 would make Flywheel “be more transparent and to show us what that are doing.”
“Most everyone signed leases where we got an eighth royalty and we’re not getting anywhere near that with Flywheel,” Brown said. “At this point, almost every landowner that has producing minerals are being affected. Our checks are not what they were prior.”
Brown said she and her husband have leased since around 2007, but when demand for natural gas decreased “and the cost to extract it was increasing, the companies went elsewhere and explored others.”
“Our sales tax was up [before the companies left] because the workers were here working; our royalties were up,” she said. “The county owned the 80 acres out there, the old landfill. and then our severance tax from the state was up because the gas production was up, so those were the glory days. And then they just kind of tailed off.”
Conway, Faulkner, Van Buren, Cleburne and White counties make up the Fayetteville Shale, and contribute the most production of natural gas in the state. After natural gas demand declined, Southwestern Energy was sold to Flywheel. Brown said lease owners and the county are just looking “to get some resolution, some clarity, at least some clarity” from the company.
Dismang said the Arkansas Supreme Court “refused to rule” on the interpretation. But Rep. Jim Wooten (R-Beebe) said if the Legislature doesn’t “do something to help the leaseholders, there will be additional lawsuits filed against Flywheel.”
Wooten said some leaseholders have been making 50 percent less in royalties and some 75 percent less.
“They just need to go back to the way the contracts were written, in my opinion,” Wooten said. “The lease owners had the understanding that it would be that way and it was until Flywheel got involved.”
Dismang said to help the bill pass, there were probably some provisions in the bill that could be removed as far as required reporting and making things easier to understand. Tuesday’s amendment deleted several lines.