Pennsylvania is preparing to collect a windfall from hundreds of shale gas wells and their operators after the state Supreme Court recently issued an opinion resolving a dispute over the definition of stripper wells that aren’t required to pay impact fees.
The state Public Utility Commission (PUC) is working to generate invoices for producers that have disputed and not paid impact fees while the case was unfolding, spokesman Nils Hagen-Frederiksen told NGI’s Shale Daily on Thursday. The PUC estimates that the recent court decision “will involve hundreds of wells with outstanding impact fees totaling millions of dollars.”
The Supreme Court overturned a lower court’s decision and essentially reinstated a 2016 order from the PUC that directed Pennsylvania-based Snyder Brothers Inc. to pay nearly $500,000 in impact fees, interest and penalties for failing to identify and pay them for 24 vertical wells targeting the Marcellus Shale in 2011 and 21 wells in 2012. The parties were at odds over how state law defines stripper wells.
Snyder claimed that the state's definition of a stripper well, specifically, an "unconventional gas well incapable of producing more than 90 Mcf/d during any calendar month,” meant that the company did not have to pay the fees and charges, if the well failed to reach the 90 Mcf/d threshold for any single month during the year.
The PUC has claimed that a well is not a stripper well and is subject to the impact fee if it exceeds minimum production levels in one calendar month in a year. Siding with Snyder, the Commonwealth Court concluded that the word "any" in the definition unambiguously means "any" or "one" and not "all" or "every" month as the PUC had argued.
Essentially, the argument surrounded whether a well must produce below the 90 Mcf/d threshold for one month of the year or for every month of the year to be a stipper well. If the Commonwealth Court’s decision to uphold Snyder’s interpretation of the law stood, opponents were concerned that producers would manipulate production by turning down their volumes below the threshold for one month every year to avoid paying impact fees.
The PUC appealed to the Supreme Court arguing that the Commonwealth Court’s decision contradicted both the meaning of the law and the intention of the General Assembly.
The state’s high court found that wells producing below the 90 Mcf/d threshold every month of the year are stipper wells. It ruled that the word “any” has multiple meanings, leaning instead on the legislature’s intent to craft an effective and certain bill that is not “absurd” or “impossible” to execute when it passed the legislation.
“There are approximately 17 producers with a varying number of wells and reporting years that owe impact fees for stripper well activity,” Hagen-Frederiksen said when asked how many producers might be affected by the case and how much they owe. “At this time, we do not have a final total, but those figures will become clearer in the coming weeks as invoices are generated and payments are collected from these disputed wells.”
General counsel Kevin Moody of the Pennsylvania Independent Oil and Gas Association (PIOGA), said more producers could be involved as the PUC’s figure is likely outdated and from 2017. Last year’s impact fees, which are self-reported and paid by producers annually, aren’t due until April 1.
PIOGA joined Snyder in opposing the PUC’s 2016 order. Moody said the trade group plans to ask the state Supreme Court to reconsider its decision because the PUC’s legal position on the stripper well definition has changed since it issued the order years ago. He also said the court failed to address other aspects of the Snyder case, such as the PUC’s rejection of the company’s offer to escrow the disputed funds while the matter was being resolved.
He added that there is no refund mechanism in the impact fee statute that would allow the money to be returned if the company had successfully argued its case anyhow, forcing the company to choose between paying the fees or a fine for nonpayment.
The impact fee is levied on all unconventional wells in the state during their first 15 years of operation if they produce above the stripper threshold. The fee schedule and the amount companies must pay for each well depends on the number of years they’ve produced. Since it was enacted in 2012, the state has collected more than $1.4 billion in fees for distribution to local communities and state agencies.