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Lower Natural Gas Prices Could Ding Pennsylvania Impact Fees

The Pennsylvania Independent Fiscal Office (IFO) said impact fee collections could increase or decrease this year depending largely on natural gas prices, which have trended lower through the first half of 2018.

The fee is levied annually on all unconventional wells during their first 15 years of operation, as long as they produce more than 90 Mcf. It is not a volumetric fee, but rather one calculated using a multi-year schedule based on the average annual price of natural gas. The fee schedule, and the amount companies must pay for each unconventional well, depend on the number of years the wells have produced. Fees are highest for wells in their first operating year.

If the fee schedule remains unchanged, the IFO projects that 2018 impact fee collections would increase by $14.5 million over the $209.6 million collected for 2017. If natural gas prices slip below $3.00/MMBtu this year and the fees operators pay decline, IFO estimates that impact fee collections would drop by $30.4 million.

Through the first six months of the year, IFO said, benchmark natural gas prices have ranged from $2.64/Mcf to $3.63, averaging $2.90. New York Mercantile Exchange futures prices for the remainder of the year average $2.95/Mcf, which is below the $3.00 threshold for a schedule adjustment. If prices finish below that number then the fee schedule would decrease by $5,000 for each horizontal well.

New wells could help offset any decline. State Department of Environmental Protection data show that 411 horizontal wells were spud from Jan. 1 to June 26, or 21 more than the same period last year. But while impact fee revenues are affected by the number of new wells drilled each year, natural gas prices are more important given the large number of existing wells that will continue to remit the fee.

Last year’s impact fee collections were the highest in three years, driven by more new wells and gas prices above $3.00. Companies are required to self-report annually and submit fees by April 1 for the prior year to the Pennsylvania Public Utility Commission (PUC), which oversees the program.  

Since 2012, when the impact fee was established, the PUC has collected more than $1.4 billion.

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