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Marcellus Shale Drilling and Impact Fees Skyrocket

delaware riverkeeper - Jim Willis reportsJim Willis
Editor & Publisher, Marcellus Drilling News (MDN)


Marcellus Shale impact fees are headed upward as drilling activity in the region accelerates; bringing good news to all Pennsylvanians who benefit from them.

Pennsylvania, in early 2012, enacted the most sweeping rework of oil and gas laws in the state in decades. Called Act 13, one of the provisions of the law is an “impact fee” collected on each horizontal shale well drilled. The fee is intended to offset the impacts of drilling in places where drilling happens, hence the name. However, in order to get enough support to pass Act 13, politics were played and 40% of the “fee” got re-allocated to non-impact uses. That is to say 40% of the fee became a tax and it’s now skyrocketing upward along with drilling activity.

Impact Fees

Pennsylvania’s impact “fee” is, in reality, the equivalent of a severance tax.

The main difference is that the fee is calculated according to a sliding schedule based on how long a well has been around. Beginning with the first year a shale well is drilled, and every year thereafter, drillers pay a set fee, regardless of how much gas is produced. If a driller drills a well but doesn’t complete it in year one, that driller still pays the same (very steep) fee, regardless of no production.

In that way, an impact fee is superior to a severance tax as a revenue generator for the state. Impact fees are paid for 15 years.

In setting up the somewhat complicated schedule for how much a driller will pay, it depends on how old the well is. The Pennsylvania Public Utility Commission (PUC), the agency in charge of assessing and collecting the fee, periodically adjusts the fee schedule up to account for inflation. The fee assessed depends on how much the price of natural gas is selling for at the benchmark Henry Hub trading point (in Louisiana).

During 2017 (which collected fees from drilling in 2016), if the price of natural gas at Henry Hub averaged between $2.26 – $2.99 for the year (which it did, at $2.46/Mcf), the impact fee for a newly drilled well during the year of 2016 was $45,300.

During 2018 (collecting fees from 2017), the price of natgas at Henry Hub was in the next higher bracket, averaging between $3.00 – $4.99 (2017 averaged $3.11/Mcf). So, the fee for first year wells drilled last year will be $50,700—which is $5,400 higher than a driller would have paid the previous year.

Impact Fees

More importantly, the PUC published a notice in Saturday’s Pennsylvania Bulletin, which shows that in 2016 some 503 shale wells were “spud” (i.e. drilled), and in 2017 the number went up to 786 wells spud—a whopping 56% increase! This means revenue from impact fees is set to skyrocket. The newly calculated impact fee schedule from the PUC for wells drilled in 2017 allows a comparison of impact fees this year with previous year’s and they’re way up.

Our point: Drillers in Pennsylvania already pay big bucks in “fees” (taxes) to drill in the state and they’re rising big-time. Slapping a severance tax on top of the impact fees would be a disaster, virtually shutting down any new Marcellus drilling. Yet, that’s what Governor Wolf and his comrades insist on doing.

Editor’s Note: Tom “the Two-Faced Trust-Funder” Wolf is a spiteful spoiled child. That’s why he’s still pushing a severance tax after all these years. His petulant personality demands he do it. The same petulant personality also demanded he suddenly advocate for a DRBC fracking ban to punish landowners and local officials who refused to jump on his severance tax bandwagon. That’s the real Tom Wolf—a nasty, vengeful, incompetent, spoiled brat who couldn’t care less about Pennsylvania’s economy or what Marcellus Shale impact fees have done for it.

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One thought on “Marcellus Shale Drilling and Impact Fees Skyrocket

  1. I have some problems with your arguments.

    First, the increase in the per well spud fee is due to the Henry Hub average market price, which the state has no control over, and the formula for setting the price has been has been in place for 5 years. This neither unknown or a shock to the gas companies.

    Second, the fee is a tiny sliver of the millions that goes into drilling a well or the revenue from a producing well.

    Third, if an 11.9% increase in spud fees leads to a 56.2% increase in wells drilled then the effect of the fee is insignificant. It is far more likely that the increase in average annual price and differential between domestic and international prices drives the market, not fees.

    Maybe you should treat the tax as a trivial expense that could have a positive PR value. Make sure that counties, especially those without wells, know to the penny how much gas has benefitted them. Now is the time to prepare for Utica formation drilling, which will cover a wider area than current Marcellus drilling. Make sure they know that larger benefits come to areas with wells.

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