Rents and royalties reported on Pennsylvania income tax returns from 2006 to 2010 have increased 61% statewide, and 119% in counties with Marcellus Shale activity, according to a report by the Allegheny Institute for Public Policy (AIPP). Rent and royalty income for landowners and mineral rights owners in the state rose 34% in counties with no Marcellus activity.
"Northern tier counties Susquehanna, Sullivan and Tioga each had huge jumps of more than 1,000%," Frank Gamrat, senior research associate for AIPP said in the May 30 report. "In Susquehanna, the amount claimed in 2006 was $8 million and by 2010 it had topped $133 million, a gain of more than 1,500%. In fact, the top 10 counties in terms of growth, seven in the northern tier and Greene, Washington, and Butler counties in the Pittsburgh area, all reported rent and royalty income increases of at least 200%."
Seven counties in the Pittsburgh metropolitan area that lie in the southwestern, wet gas area of the Marcellus posted a 107% increase in rent and royalty income from 2006 to 2010. Washington County led the way with a 289% increase, followed by Butler (201%). Allegheny, which includes the City of Pittsburgh, posted the smallest increase, 41%.
The overall number of income tax returns that claimed rent and royalty income increased 19% from 2006 until 2010, the year with the most recent data available. In counties with Marcellus activity, such income climbed 29% during the same time frame, but only increased 10% in counties without it.
According to Gamrat, the five counties that posted the greatest increase in reporting rent and royalty income were Susquehanna (192%), Sullivan (180%), Wyoming (165%), Bradford (145%) and Tioga (129%). He added that the next five counties, in terms of increased returns with royalties, posted a gain of at least 45%.
Gamrat said state law, specifically, Act 60 of 1979, stipulates that landowners and mineral rights owners be given a minimum royalty payment of 12.5% of the value of the gas "removed or recovered from the subject real property." He also said royalty owners are typically paid on a monthly basis (unless their contract states otherwise), and gas companies are allowed to deduct transportation fees and post-production costs (but not well fees or impact fees) from royalties.
"With this information, we can estimate the total royalties paid in Pennsylvania from Marcellus Shale production from 2008 through 2012," Gamrat said, adding that Marcellus Shale production in 2008 totaled 9.8 Bcf, and was priced that year on the New York Mercantile Exchange (Nymex) at $8.90/Mcf.
"Thus the revenues from the shale gas should have been approximately $86.95 million. Using 12.5% for royalties, royalty payments would have been around $10.9 million to the owners of shale mineral rights. To keep this in perspective the [federal] Bureau of Economic Analysis (BEA) notes that in 2008 the amount of personal income in Pennsylvania was about $513 billion. Thus these royalty payments account for about 0.002% of state personal income."
Gamrat said more than 2.07 Tcf of natural gas was extracted from Pennsylvania's potion of the Marcellus in 2012. Although gas prices had fallen, in part due to increased supply, estimated gas revenues are more than $5.85 billion for 2012.
"Again using 12.5% as the royalty percentage gives an estimated $731 million in royalties for 2012," Gamrat said. "Thus royalty income paid to owners of land/mineral rights in Pennsylvania skyrocketed by more than 6,600% thanks to Marcellus Shale. The BEA's estimate of personal income for 2012 was just above $556.7 billion, so royalty payments from Marcellus Shale accounts for about 0.13% of that income.
"While this is still a very small portion of the total, it has certainly grown over the last five years, reflecting the massive rise in royalty payments...And while the state income as a whole is not boosted significantly in percentage terms, royalty incomes in the counties where drilling and production activity are heaviest are certainly having a measurable effect on the county's total income."