OUR THOUGHTS ON:

Updated Pending Legislation for Pennsylvania Marcellus Shale Impact Fee

Energy & Resources

By John Kohler

On February 7, 2012, the Pennsylvania Senate approved a Marcellus Shale Impact Fee using a combination of parameters set forth in the bills proposed in 2011 by the House, Senate and Governor Corbett. Below are the highlights of the Senate's version of the bill:

 

 

Per Well Fee when Average Annual Price of Natural Gas is

 

Less Than $2.25

Greater Than $2.25 and Less than $3.00

Greater Than $2.99 and Less Than $5.00

Greater Than $4.99 and Less Than $6.00

Greater Than $5.99

Spud Year

$40,000

$45,000

$50,000

$55,000

$60,000

Year Two

$30,000

$35,000

$40,000

$45,000

$55,000

Year Three

$25,000

$30,000

$30,000

$40,000

$50,000

Years 4 - 10

$10,000

$15,000

$20,000

$20,000

$20,000

Years 11 - 15

$5,000

$5,000

$10,000

$10,000

$10,000

This fee will be imposed on all unconventional gas wells in counties that elect to impose the fee. A vertical well producing greater than 90mcf per day is, for purposes of this fee, is considered to be unconventional and subject to the fees at a rate reduced by 20%, but the fee will not be imposed for years 11 - 15 for the vertical unconventional gas wells. All horizontal unconventional wells are subject to the applicable per-well fee without a reduction.

The Public Utility Commission has set forth that all wells drilled prior to December 31, 2011 shall be considered to have the spud year as 2011 for determining the fees a drilling company is required to pay. The fee shall be determined using the average annual price of natural gas for the calendar year the fee applies. The average annual price of natural gas is determined using the New York Mercantile Exchange (NYMEX) settled price for the near-month contract, as reported by the Wall Street Journal for the last trading day of each month of a calendar year for the 12-month period ending December 31. The average annual price of Natural Gas for 2012 was $4.47.

For all wells spud after January 1, 2012, the fee shall be due the April 1 following the calendar year the well is drilled. For wells drilled prior to January 1, 2012, the date the spud year fee is due is September 1, 2012.

Beginning January 1, 2013, the fees are adjusted yearly based on the Consumer Price Index. After the distribution to the various state agencies, the fees are distributed 60% to the municipalities where unconventional gas wells are located. The additional 40% of the fees will be deposited into the Marcellus Legacy Fund to be used for statewide initiatives, i.e. natural gas fuel stations, etc. 

The fee charged will not be a statewide fee. This fee will be imposed by the counties where unconventional gas wells are located. If a county elects not to charge the fee, but more than 50% of the municipalities in the county elect to impose the fee, the county must charge the fee. If a county chooses not to impose the fee, the county and those municipalities located in the county will lose their share of the local fee.

Local municipalities receiving funds relative to the unconventional gas well fee will be restricted regarding the use of the funds. In addition, as part of the bill, which amends Article 58 of the Pennsylvania Consolidated Statutes, there are changes to permit requirements and restrictions regarding local ordinances for municipalities that elect to impose the unconventional gas well fee. Municipalities that elect to impose the well fee will have their local ordinances related to the regulation of oil and gas operations superseded by the Pennsylvania state laws, including environmental regulations. Essentially, local ordinances may not impose more stringent regulations regarding the exploration and development of oil and gas resources than either federal or state laws. Also, no permits will be issued to drilling companies unless they are compliant with payment of well fees.

The Pennsylvania House of Representatives is expected to vote on this bill by February 10. If the bill is passed, Governor Corbett is expected to swiftly sign this legislation into law. Visit our Insights blog for future updates. 

© 2012 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

 

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.

© 2018 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

comments