A nonpartisan policy research group in Pennsylvania asserts that the state could have collected almost twice the revenue it has received in impact fees on Marcellus Shale natural gas drilling if it had implemented a severance tax instead.
The Pennsylvania Budget and Policy Center (PBPC) said that based upon its calculations, a severance tax modeled on a similar levy in neighboring West Virginia would have raised $387 million between July 2009 and December 2011. The group said production data from the state Department of Environmental Protection (DEP) showed more than $6 billion worth of natural gas was extracted from Pennsylvania’s portion of the Marcellus Shale during that period.
“There are real questions about whether Pennsylvania’s fee is enough to pay for the impacts of drilling on local communities,” PBPC Director Sharon Ward said Tuesday. “Local communities have short- and long-term issues to address and should not be shortchanged.”
On Sept. 10, the Pennsylvania Public Utility Commission (PUC) said natural gas producers were billed $206 million for wells spud in 2011 and earlier, under the terms of the drilling impact fee enshrined in Act 13, the state’s new omnibus Marcellus Shale law (see Shale Daily, Sept. 12). The amount was a surprise since lawmakers, during their deliberations over Act 13, estimated the impact fee would net about $180 million in 2012 (see Shale Daily, April 30).
But the PBPC said the state would have come out ahead with a severance tax, had lawmakers enacted one as envisioned in the Commonwealth of Pennsylvania’s fiscal 2009-2010 budget address (see Daily GPI, Feb. 9, 2009). The issue would go on to be debated for another three years.
However, when Republican Gov. Tom Corbett took office in January 2011 along with a Republican-dominated legislature, the debate moved away from a severance tax. Corbett and many of his fellow Republicans had won election on a platform of “no new taxes,” and he made clear that included no severance tax on natural gas. Corbett said he could support an impact fee to help local communities repair any damages from gas development (see Shale Daily,March 25, 2011).
“In most energy-producing states, drilling tax revenue supports education and health care, funds environmental conservation and protection, and ensures that gas producers are paying for the impacts of drilling,” the PBPC said. “Pennsylvania’s drilling impact fee…[is] one of the lowest drilling tax or fee rates on gas extraction in the nation.”
According to the Washington, DC-based Resources for the Future’s Center for Energy Economics and Policy, the national average for severance taxes is about 11 cents/Mcf (see Shale Daily, Aug. 9). West Virginia, a mid-range volume producer, charges 12.3 cents/Mcf, which equates to a 5% severance tax.
Using spud data reports provided by the DEP, the PUC determined that 4,034 horizontal and 419 verticals wells were subject to the impact fee. These wells were spud in 2011 or earlier, but for the PUC’s fee calculation purposes the first year for all of the wells will be considered as 2011.
Meanwhile, the PUC will set the rate for wells drilled this year on Jan. 31, 2013 using a tiered structure set according to the average price of natural gas on New York Mercantile Exchange for the last day of the preceding 12 months and adjusted for the Consumer Price Index. The payments for the 2012 fee are due April 1, 2013.
The fee lasts for the first 15 years of the life of a well and decreases annually.
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