Oil and Gas Royalties: Are You Underpaid?

Your gas well is producing, the checks are arriving, and the numbers do not add up to what you expected. You are not imagining it. Pennsylvania sets a floor on your royalty, but the law also lets producers subtract certain costs before they pay you. Here is how to read your own check.

The Minimum Royalty a Pennsylvania Lease Must Guarantee

One-eighth is the number the statute protects. Every valid lease has to leave you with at least that share of production. If a company hands you a lease that pays a flat sum, or a fraction below one-eighth, the guarantee is not met and the lease has a problem. This is the single most important line in any lease I review for a landowner.

Is One-Eighth a Floor or a Ceiling?

It is a floor, not a ceiling. The statute sets the minimum. Nothing stops you from negotiating a larger royalty, and in strong markets landowners have signed leases at one-sixth, one-fifth, or higher. If someone tells you "the law says one-eighth," they are quoting the bottom of the range, not the limit. What you can get depends on your acreage, the play, and how much bargaining power you have at the table.

Why Your Check Is Smaller Than One-Eighth of the Sale Price

Take the price the gas sold for, multiply by one-eighth, and your check is smaller than that math predicts. The reason is where Pennsylvania measures your royalty. In Kilmer v. Elexco Land Services, the Pennsylvania Supreme Court held that a royalty is valued at the wellhead, not at the point of final sale. Gas is worth less at the wellhead than after it has been gathered, compressed, processed, and moved to market. The court approved the net-back method: the producer starts from the sale price, subtracts a proportionate share of the cost of getting the gas to market, and pays you one-eighth of what is left. Done correctly, that still meets the one-eighth floor.

What Post-Production Costs Are, and Whether They Can Be Deducted

Post-production costs are the expenses of turning raw gas at the wellhead into a marketable product and moving it to the buyer: gathering, compression, dehydration, processing, and transportation. Under Kilmer, a producer may charge your royalty a proportionate share of these costs, so long as your lease permits it and the net still clears one-eighth.

There is a limit that works in your favor. A federal court applying Pennsylvania law in Pollock v. Energy Corp. of America drew the line at the point where title to the gas passes to third-party buyers. Costs the producer runs up after it has already sold the gas are not chargeable back to you. If your stub shows deductions piling up past the sale point, that is worth a closer look.

Does the Exact Wording of Your Clause Change What You Get?

Yes. The words in your royalty clause decide whether deductions are allowed at all. A clause that says "at the well" points toward the net-back deductions Kilmer allows. A clause that promises "gross proceeds" points the other way. When a lease mixes the two, the meaning is genuinely unsettled.

What Must Appear on Your Check Stub

Pennsylvania law tells the producer what it has to show you. For unconventional (shale) wells the disclosures live in 58 P.S. § 35.3, and for conventional wells in 58 P.S. § 35.2. On the stub or an attachment you are entitled to see:

• The production month and the volume of gas or oil
• The price per unit
• Taxes and any deductions the lease permits
• Your decimal or fractional interest in the well
• Your gross share and your net share of the proceeds
• Contact information for the payor

If your stub is a bare dollar figure with none of this detail, the producer is not giving you what the statute requires. That once-a-year remittance option for proceeds under $100, and the right to hold payment where record title is unmarketable, an interest is in genuine dispute, or an owner cannot be located, live specifically in § 35.3 for unconventional (shale) wells. Section 35.2, which covers conventional wells, sets out only the disclosure list above. It does not give a conventional-well producer that same remittance-timing or hold-payment leeway.

How to Tell If You Are Underpaid

Start with three checks. First, confirm your decimal interest on the stub matches your acreage and your fraction under the lease; a wrong decimal underpays you every single month. Second, add up the deductions and ask whether your lease actually allows them and whether any of them fall after the sale point. Third, compare the price used against what the gas realistically sold for. Underpayment usually hides in one of those three lines, not in the royalty fraction itself. Keep your stubs. A pattern across several months tells the story a single check cannot.

The Assignment-Back Trick

Here is a maneuver the courts have already shut down. A lease recites a one-eighth royalty, which looks fine, then a separate document assigns part of that royalty back to the company, quietly dropping your real net below one-eighth. In Southwestern Energy v. Forest Resources, the Superior Court refused to let that work. Pennsylvania reads the agreements together, as a whole, and an assignment-back that pushes your net under one-eighth violates the Guaranteed Minimum Royalty Act. If you were asked to sign a royalty assignment alongside your lease, that paperwork deserves a hard look.

How I Help

Most royalty disputes are decided by reading the lease clause, the division order, and the check stub against each other, then holding the producer to the words it agreed to. I help Pennsylvania landowners audit their royalty statements, decode the deductions, confirm the decimal interest, and press for a correction when the numbers are wrong. If your clause is the ambiguous kind now before the Supreme Court, I will tell you where you stand and what a ruling could change.

Legal Authorities

The Pennsylvania statutes and cases behind this page:

• Guaranteed Minimum Royalty Act, 58 P.S. § 33.3.
• Kilmer v. Elexco Land Services, Inc., 605 Pa. 413, 990 A.2d 1147 (2010).
• Dressler Family, LP v. PennEnergy Resources, LLC, 276 A.3d 729 (Pa. Super. 2022), appeal granted, 292 A.3d 842 (Pa. 2023), appeal discontinued (Pa. Sept. 7, 2023).
• Southwestern Energy Production Co. v. Forest Resources, LLC, 83 A.3d 177 (Pa. Super. 2013).
• Pollock v. Energy Corp. of America, 665 F. App'x 212 (3d Cir. 2016).
• Royalty payment disclosures, 58 P.S. §§ 35.2–35.3.

This page is general information about Pennsylvania law, not legal advice about your specific lease, and the law can change. For advice on your own tract and royalty statements, speak with a lawyer.

Legal and factual content on this page was last verified: Aug. 2026. If you are reading this significantly after that date, confirm key provisions with current statute text or contact our office.