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Pennsylvania Senate Passes Drilling Impact Fee, 29-20

The Pennsylvania Senate approved a 3% impact fee on oil and natural gas drillers on Tuesday night, moving the Keystone State one step closer to possibly generating revenue from Marcellus Shale development. Meanwhile the state House of Representatives, after three days of tacking on amendments, is poised to pass its own competing bill Thursday (Nov. 17).

Senate Bill 1100 passed by a 29-20 vote, with Sens. Timothy Solobay (D-Canonsburg) and John Wozniak (D-Johnstown) joining 27 Republicans in support. Seventeen Democrats and Sens. John Eichelberger Jr. (R-Hollidaysburg), Mike Folmer (R-Lebanon) and Jane Clare Orie (R-Pittsburgh) voted against the bill. Sen. John Yudichak (D-Nanticoke) did not cast a vote.

"This legislation will help communities impacted by drilling provide for reasonable local zoning parameters and implement strong environmental protections," state Senate President Pro Tempore Joe Scarnati (R-Warren), the primary sponsor of SB1100, said Tuesday. "Through a reasonable and well thought out impact fee on shale companies, we can manage this tremendous resource in a way that improves our economy, creates new jobs and opportunities for our residents and protects our quality of life."

SB1100 calls for imposing a tax rate of approximately 3% on natural gas production, retroactive to 2010. A sliding fee of $50,000 per well would be assessed on unconventional wells in the first year of production, $40,000 in the second year; $30,000 in the third year; $20,000 in the fourth through 10th years, and $10,000 through the 20th year. An additional fee would be implemented if natural gas prices exceed $5/Mcf.

According to figures provided by Scarnati, the 2,319 wells operating in Pennsylvania this year would have generated more than $94.1 million in tax revenue had SB1100 already been in place. Assuming that natural gas prices remain below $5/Mcf, Scarnati said the state could generate $154.7 million in 2012 and $295.4 million in 2015, when there could be 9,669 wells in the state. If prices climb above $5/Mcf, the state could take in $191.0 million in 2012 and $366.2 million in 2015.

Under SB1100, 55% of the revenue collected from the fees would go to county and local governments that host drilling, with the remainder going to the state.

"The Marcellus Shale industry is here to stay in Pennsylvania -- bringing us jobs, huge economic benefits and the potential for energy independence," Scarnati said. "It makes sense to impose a reasonable impact fee on the industry to provide the funding necessary to further protect our natural resources, particularly at a time when our state is being forced to stretch our tax dollars."

On Monday the Senate Appropriations Committee passed a revised version of SB1100 that returned an impact fee to the bill, added environmental safeguards and changed the way the bill would govern local ordinances over oil and gas drilling (see Shale Daily, Nov. 16). The fee had been taken out in October to try and reach a compromise on other issues (see Shale Daily, Nov. 2; Oct. 28).

A competing bill, House Bill 1950, is moving through the state House of Representatives (see Shale Daily, Nov. 4). Under HB1950, counties would be allowed to assess an impact fee of up to $40,000 per well in the first year of production, but that annual fee would drop to $10,000 for the fourth through 10th years of production. Another difference from SB1100 is that local and county governments would collectively keep 75% of the revenue generated by the fees (see Shale Daily, Oct. 4).

The House passed two amendments to HB1950 on Monday, and took up another 18 amendments on Tuesday, all but two of which ultimately passed. The chamber continued to vote on amendments to the bill into Wednesday evening. According to information obtained from the lobbying firm Bigley and Blikle's Marcellus Minutes publication, the House used a parliamentary maneuver to cut off debate on HB1950 Wednesday night. No additional amendments will be offered and the bill will move toward final passage Thursday.

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