Pa. shale impact fees declined amid low gas prices

The Pennsylvania Public Utility Commission reported collections of $173.3 million for calendar year 2016, which were remitted in April 2017.

Officials in 2015 took in $187.7 million worth of fees, according to a new report from the state’s Independent Fiscal Office (IFO), which cites several factors for the decrease.

“The main driver of lower impact fee revenues was the continued low price of natural gas,” the report states. “Despite a slight increase in 2016, the price of natural gas remained near its lowest point in the past decade.”

“As a result, firms were motivated to further reduce the drilling of new wells,” the report stated.

The state imposes an annual impact fee on “unconventional” drilling sites — such as those tapping into the Marcellus Shale to release gas within the rock using hydraulic fracturing, or fracking — that were drilled or operating in the previous calendar year.

Proceeds from the impact fee are then distributed to local governments and state agencies to provide for infrastructure, emergency services, and environmental programs related to the impacts of drilling.

IFO statistics show that the average annual cost per thousand cubic feet of natural gas in Pennsylvania was 75 cents in 2016 — while up from 65 cents in 2015, it was down significantly from an average price of $2.38 per thousand cubic feet in 2014.

That wasn’t the only factor driving revenue down according to IFO, however:

• New wells are insufficient to offset lower fees caused by the aging of existing wells, the agency said.

The impact fee is highest in a well’s first operating year, and declines as the well ages, IFO pointed out.

• Exempt status and related issues also played a role, as wells are exempt from the fee as their production falls below 90,000 cubic feet worth of production per day.

The report did not indicate how many wells were exempt in 2016, but noted that only 504 new wells had been added, nearly 280 fewer than than the previous year.

IFO did predict a stronger 2017, however, due to increasing gas prices and a higher number of new wells (398) so far this year compared with the same period last year.