Natural gas royalties in Pennsylvania exceeded $1 billion in 2017, the latest period for which data is available, while payments made in 2018 are projected to be even higher, according to the state’s Independent Fiscal Office (IFO).
An analysis released by the IFO this week estimates that royalty payments were $905 million in tax year 2010, peaked at $1.62 billion in 2014 and then fell to $1.06 billion in 2017. Despite the move lower since 2014, natural gas prices recovered from a collapse in 2015 and 2016, pushing estimated payments up from a low point of $645 million in 2016.
The IFO analysis is projecting a further increase in royalties paid in 2018 to Pennsylvania landowners. Compared with 2017, the average spot price at major hubs in the state increased by more than one-third last year, while production was up by 14% to 6.1 Tcf. Assuming operators deduct a similar amount of post-production costs from payments as in 2017, 2018 royalties could exceed $1.6 billion, IFO said.
The office cautioned that its analysis included only rough estimates as operators don’t publish the amount of royalties paid to landowners. Instead, IFO relied heavily on personal tax returns. Royalty payments are not reported separately, but included with other sources of income.
“However, given the relatively recent surge in natural gas drilling, and by extension royalty payments, and the high concentration of natural gas production in a small number of rural counties, it is possible to use tax data trends for those counties to derive a rough estimate of total natural gas royalties paid over time,” the IFO said.
Marcellus Shale Coalition President David Spigelmyer said royalties “have been a catalyst for economic growth” across the state, noting that the payments also have resulted in hundreds of millions of dollars in additional tax revenue.
To reach its estimates, IFO analyzed tax data from the top producing counties, which are in order Susquehanna, Washington, Greene, Bradford, Lycoming, Tioga, Wyoming, and Butler. The counties together produce nearly 90% of all the state’s natural gas.
Payments could move lower this year as natural gas prices have decreased and many of Appalachia’s leading operators have announced plans to cut spending and curb production growth modestly amid a market that’s flush with supply.