Pa. Marcellus Shale Fee Among the Lowest in the Nation

A blog post by Michael Wood, originally published at Third and State.

Lost amidst our work this week on Governor Corbett's 2012-13 budget was the state Legislature's passage of a Marcellus Shale package that will give Pennsylvania one of the lowest drilling tax or fee rates in the nation. The bill is now awaiting the Governor's signatures.

As The New York Times wrote this week:

Critics, among them some municipalities and environmental groups, said the bill was a capitulation to the energy industry and would all but eliminate their ability to decide where gas development could happen. The measure would limit it in densely populated urban areas but not in suburban spaces, critics said. They also said the environmental and safety standards, like the requirement that wells be at least 500 feet from any house, were weak.

The Times also cited our estimates that "at the current price of natural gas, the fee would amount to an effective tax rate of 2.6 percent, far less than the 5.4 percent in Texas."

The fee sets a 15-year rate schedule for Marcellus wells that rises and falls based on the price of natural gas and inflation. The Associated Press made the point, again citing our work, that this is much lower than drillers pay in other states:

At the current price of gas, the 15-year fee total would be $240,000 per well, not counting inflation, according to a summary distributed to House Democrats. The maximum per-well fee a company would pay is $355,000, if gas stays above $6, while the minimum would be $190,000, if gas stays below $2.25, again not including inflation

But the fee at any price would be well below the average lifetime per-well tax paid in other natural gas states, including $993,700 in West Virginia, $878,500 in Texas and $555,700 in Arkansas, according to the Harrisburg-based Pennsylvania Budget and Policy Center ...

As far as distribution of the revenue, The Philadelphia Inquirer explains:

The bill sends 60 percent of proceeds to localities directly affected by drilling, to cover such items as road repair — drillers' mammoth trucks have wreaked havoc on upstate roads — and increased public-safety costs.

The other 40 percent goes to statewide projects, many of them environmental, including repairs to greenways and recreational trails, protection of open space, and other beautification projects.

Bottom line: Pennsylvania will have a Marcellus Shale fee, but it will be a fraction of what drillers pay in most other energy-rich states.

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