The Pennsylvania Department of Environmental Protection (DEP) Dec. 9 released its latest estimates for the annual impact fee on unconventional natural gas wells, forecasting a decline in collections for calendar year (CY) 2024.
The impact fee, which has been a critical source of funding for local governments and state programs since its inception, is expected to generate $163.8 million for CY 2024, a decrease of $15.8 million (8.8 percent) from collections the previous year, according to the report.
“The decline in collections is largely due to a significant decrease in new wells that pay the highest fee and help offset reduced collections from older wells,” DEP says in the report.
The Independent Fiscal Office (IFO) estimates that 320 wells will be drilled in 2024, marking a 25-percent reduction from 2023 and the lowest count since 2007. New wells in their first operating year are subject to the highest impact fees, which helps offset diminishing revenue from older wells, the DEP says.
Pennsylvania imposes an annual impact fee on unconventional (i.e., shale) natural gas wells that were drilled or operating in the previous calendar year. Proceeds are distributed to local governments and state agencies for infrastructure, emergency services, environmental initiatives, and other programs.
Local governments receive funds based on the number of wells located within their boundaries or their proximity to jurisdictions where natural gas extraction occurred, the DEP says.
Additionally, the average fee per well has decreased, reflecting fluctuations in the natural gas market and the fee schedule.
The fee for a newly drilled well in its first operating year remains $51,800, consistent with 2023 but down 25 percent from 2022 when natural gas prices peaked.
Horizontal wells in their fourth operating year or beyond that produce less than 90 Mcf (thousand cubic feet) per day — commonly known as stripper wells — are exempt from the fee, the report says, while vertical wells with similarly low production levels are also exempt in any operating year.
Over the last four years, total revenues and distributions from the impact fee have fluctuated significantly, driven by the number of wells paying the fee, the average fee per well, and natural gas prices. The fee schedule, tied in part to market conditions, peaked in 2022 when the NYMEX annual average price was $6.64 per Mcf, according to the report.
The DEP said it will finalize and remit collections for CY 2024 in April 2025.