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Higher natural gas prices boost state's drilling fee revenue

| Friday, April 4, 2014, 1:45 p.m.

The state should pump nearly 11 percent more in fee money from gas companies this year, with more wells operating and higher natural gas prices triggering larger amounts that deep-shale drillers must pay.

Data released by the Public Utility Commission on Friday show the state expects to collect $224.5 million in 2014 through Act 13's impact fee assessed on unconventional wells, more than either of the two previous years.

The report inflamed the debate over how to tax plentiful gas from Pennsylvania shale, which likely will remain prominent this election year as Democrats use it to attack Gov. Tom Corbett.

There are 6,489 unconventional wells producing gas in the state, including 1,129 wells drilled in 2013 that pay a $50,000 fee that covers road work, conservation, housing and other costs in drilling areas.

While gas prices rose, the number of new wells drilled fell in 2013, from 1,288 in 2012.

In the oil and gas law known as Act 13, state lawmakers tied the fee to the price of gas.

“The number of new wells may be down, but keep in mind how the fee works,” said Patrick Henderson, Corbett's energy chief. “Wells from 2012 are paying for the second time, and those before that for a third time, so the overall universe of wells paying is up, which is good news for the commonwealth.”

The money is divided based on a formula in the law that first feeds set amounts to some state agencies. Most of the rest goes to municipal and county governments, largely based on where drilling is happening.

Opponents of the impact fee contend Pennsylvania is leaving money on the table. All four candidates for governor in the May 20 Democratic primary support some form of a severance tax based on the value or volume of gas and liquids from wells.

A report last month by the state Independent Fiscal Office said the impact fee translates to a very low tax rate when compared with nearby and large gas-producing states, placing Pennsylvania with Ohio at the bottom of 11 states.

“When you add it all up, one of the things the governor believes is conveniently overlooked is the cumulative tax burden in the state from the corporate income tax, the capital stock and franchise tax and other taxes that are applicable,” Henderson said.

The Marcellus Shale Coalition, which represents producers, said they have contributed more than $2.1 billion in recent years to the state's general fund, and more than $1 billion in infrastructure projects and royalty payments to the state and landowners.

But the Pennsylvania Budget and Policy Center has called on Pennsylvania and other states to adopt a common severance tax no lower than West Virginia's 5 percent rate. PBPC is a project of the left-leaning Keystone Research Center.

“For Pennsylvania residents, today's announcement is just a reminder that we are shortchanged by the failure of our elected leaders to enact an adequate severance tax,” said Sharon Ward, director of the center. The state's impact fee is “significantly lower” than what gas producers in the state pay elsewhere, she said.

“The only reason big oil companies avoid paying fair taxes in Pennsylvania — like they pay in every other natural gas state — is because Tom Corbett received about $1.7 million in campaign contributions from the gas and oil industry,” said Beth Melena, spokeswoman for the state Democratic Party.

The Corbett campaign responded by criticizing state Democrats for supporting a moratorium on hydraulic fracturing, or fracking, and said the governor's energy agenda has helped families, business and the economy. The Democratic State Committee passed a resolution in August calling for a moratorium until health and environmental concerns were addressed.

“The Pennsylvania Democratic Party supports a ban that would shut down Marcellus shale production in our state and kill thousands of family-sustaining jobs,” said Billy Pitman, spokesman for the Corbett campaign. “Gov. Corbett's pro-energy agenda is growing our economy, reducing energy costs for families and small businesses and putting Pennsylvanians back to work.”

State Rep. Brian Ellis, R-Butler County, the sponsor of Act 13, said such talk is “the familiar rhetoric of candidates who believe they can solve all problems by raising taxes.”

Areas of Western Pennsylvania in which natural gas development is happening are seeing growth and the benefits of impact fees that are returned to those areas, Ellis said. Advocates of a severance tax say, “We should be sending the money to Harrisburg, hoping that the areas where drilling is happening would see some of that money back,” he said. “I don't believe any of the statewide candidates are taking into account that we would be losing if we go to a statewide tax instead of a regional drilling tax.”

The state collected $202.5 million in 2013, based on production in the previous year, and $204.2 million in 2012.

The drilling impact fee was due from drillers by April 1, although some fees were delayed because of late and disputed payments, said PUC spokeswoman Jennifer Kocher.

PUC has until July 1 to send out that money, but how much each recipient gets should be known by June, she said.

The annual average natural gas price rose by nearly a third from 2012 to 2013, to $3.65 per thousand cubic fee from $2.78 per thousand cubic feet, according to the commission's calculations. The owners of newly drilled horizontal wells had to pay $50,000 for each. Owners of second-year wells paid $40,000, and owners of older wells paid $30,000 for each.

John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or joravecz@tribweb.com.

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