Lower natural gas prices and the mix of new and existing wells in Pennsylvania drove an estimated $55.9 million year/year decrease in the impact fees collected by natural gas producers in 2020, according to the latest figures from the state’s Independent Fiscal Office (IFO).
Natural gas producers paid a projected $144.9 million in impact fees last year, the IFO said. For the same period, the average price of natural gas at U.S. benchmark Henry Hub was $2.08/MMBtu. Because the price dropped below $2.25, the impact fee schedule decreased by $5,000 per horizontal well compared to 2019 levels, according to IFO. This resulted in a roughly $52.1 million decline in fees collected.
Fees also were negatively impacted by reduced collections from aging wells that pay lower fees and wells that become exempt offsetting fees from new wells, IFO said. Any payments for the prior year that were not received in time for disbursement also affected fees to the tune of about $3.8 million.
Impact fees are levied annually on all unconventional wells during their first 15 years of operation, as long as they produce more than 90 Mcf. Fees are calculated using a multi-year schedule based on the average annual price of natural gas.
The fee schedule, and the amount companies must pay for each well, depends on the number of years the wells have produced. Fees are highest for wells in their first operating year. Plugged horizontal wells are exempt after remitting the fee in the first year. Vertical wells that produce less than 90 Mcf/d are exempt from the fee in any operating year.
Annual natural gas production in Pennsylvania reached 7.0 Tcf, up from 6.8 Tcf in 2019, according to IFO. The figure is based on statewide well production data published through October by the Department of Environmental Protection. Pennsylvania is the nation’s second largest gas-producing state behind Texas.
Pennsylvania Public Utility Commission data indicates that county and municipal governments that are directly affected by natural gas development would receive about $76 million for the 2020 reporting year, while about $50.5 million would go toward the Marcellus Legacy Fund. The fund provides financial support for a variety of environmental, highway, water and other projects across the state. Another $18.4 million is to be distributed to state agencies. Fees are to be remitted in April and distributed in July.
The IFO is scheduled to release an updated revenue estimate and discuss economic trends for fiscal year 2020-2021 to 2025-2026 on Jan. 21.
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