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 conducted a full analysis. Texas paid 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. But 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,” said Jerry Simmons, the director of the association, which was founded in 1980 and is based in Oklahoma. “We’ve seen a lot of new people, and new questions.”
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.
By comparison, a 10 percent 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.
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.