Natural Gas Sector Generating Lower Impact Fee Revenues

Energy & Resources

By George Adams

Many states have realized significant revenue decreases recently related to lower natural gas prices.  This impacts many states in the form of lower severance tax revenue.  However, there is no severance tax in Pennsylvania, but there is an impact fee.

The recent trend of lower natural gas prices has created a drop in impact fee revenue of 16 %.  This translates to disbursements from impact fees collected in the amount of $187.7 million in 2015 compared to $223.5 million in 2014 based on data released from the Pennsylvania Public Utility Commission (PUC).  Nils Hagen-Frederiksen, press secretary for the PUC said, "The drop in this year’s distribution is approximately $35.8 million lower than last year, driven by a reduction in the price of natural gas – which resulted in a $5,000 per well reduction in the fee paid this year, along with the increasing age of many wells, which also reduces the per-well fee."

The amount of impact fee revenue is affected by both natural gas prices as well as production levels.  The lower natural gas prices have affected drilling activity and consequently the amount of gas produced.  Many producers have made the decision not to start any new wells until natural gas prices rise to a level that will enable projects to be profitable.  Natural gas production in 2015 was up slightly compared to 2014, at 4.62 billion thousand cubic feet (mcf) compared to 4.07 billion mcf, respectively.

The impact fee revenue is disbursed within the counties where the natural gas drilling and production occurs.  The top 5 counties receiving impact fee disbursements were Washington ($5.68 million), Susquehanna ($5.25 million), Bradford ($4.92 million), Greene ($3.9 million) and Lycoming ($3.72 million).  These fees help municipalities in the areas with the greatest amount of drilling activity to repair roads and address other side effects of the drilling and production activity.  Often, severance tax revenues are allocated to areas where no drilling activity occurs. 

As budget discussions for the 2016/2017 fiscal year continue, Pennsylvania should be very cautious to rely on budgeted revenue from industry production taxes, as these can fluctuate dramatically based on economic conditions.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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