Natural gas royalties paid to Pennsylvania landowners rose significantly in tax year 2017 due to increased production and higher prices, the state Independent Fiscal Office said in a recent report.
The report said $1.06 billion in royalty payments were made in 2017 — a 64% increase from tax year 2016.
The eight-year analysis said payments totaled $905 million in tax year 2010 and peaked at $1.62 billion in tax year 2014. The collapse of natural gas prices in 2015 and 2016 led to a large reduction in royalty payments, although statewide production increased in both years, IFO said.
For 2017, natural gas prices recovered and estimated royalty payments did, too, the report said.
Natural gas producers pay royalties based on the revenues received from the sale of gas extracted from wells located on a landowner’s property. Pennsylvania law mandates a minimum royalty rate of 12.5% of the market value of the sale.
Because royalty income is not reported separately on the tax return, it has to be estimated by isolating it from rental, patent and copyright income, the report said.
IFO predicted a further increase in royalties for tax year 2018. Compared to 2017, the average spot price at major Pennsylvania hubs increased by more than one third, while total output increased by 14%.
If those gains are passed through to landowners, then royalty payments will increase by roughly 50-55%, IFO said.
In Western Pennsylvania, Butler, Washington and Greene counties had the highest amount of payments.
