The Independent Fiscal Office (IFO) recently released a report projecting calendar year (CY) 2019 collections from the Impact Fee that Pennslyvania imposes on unconventional natural gas wells.
The report uses data published recently by the Department of Environmental Protection. Collections are estimated at $198.2 million, a reduction of $53.6 million from the previous year.
IFO found that a lower fee schedule reduced collections by approximately $49.9 million. In CY 2019, the average annual price of natural gas on the New York Mercantile Exchange (NYMEX) was $2.63 per million British Thermal Units (MMBTU). Because of this price reduction, the impact fee will decrease by $5,000 per horizontal well from CY 2018 levels.
Wells pay higher impact fees in their first year of operation. As wells get older, their fees decline, and they eventually stop paying the fee. In CY 2019, collections from new wells more than offset reductions in collections from aging wells, resulting in $3.8 million in additional collection.
Collections in CY 2018 for previously disputed payments due to the interpretation of stripper well status and late payments from earlier years resulted in a decrease of $7.5 million.
The effective tax rate (ETR) equals the annual impact fee revenues divided by the total market value of unconventional natural gas production. The annual ETR changes based on the movement of fee revenues, production, and price.
The ETR for CY 2019 is projected to be 2.1 percent, a slight reduction from the previous year. A decline in the market value of gas offset the reduction in estimated impact fee collections, resulting in the ETR declining by one-tenth of a percentage point from the year before. The decrease in market value was affected by a decline in regional gas hub prices. The reduction in prices more than offset the approximately 11 percent gain in production.
The ETR has decreased every year from CY 2015 to CY 2018, following a significant increase from CY 2014 to CY 2015. These reductions were caused primarily by increases in the market value of natural gas. The growth in the hub price of Pennsylvania natural gas and the production of natural gas in Pennsylvania offset the increases in impact fee collections in CY 2017 and CY 2018, according to the report.