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Saturday, April 13, 2013

Pa. towns to see fewer dollars from Marcellus Shale drilling this year

Post Gazette article written by Andrew McGill April 4, 2013

Although energy companies have drilled more natural gas wells in Pennsylvania, towns will see fewer dollars from them this year.

Shale impact fee revenue dropped by 3 percent in 2012, according to state Public Utility Commission figures released Wednesday. Drillers will contribute $198 million to Pennsylvania counties and towns this year, down $6.2 million.

The information released Wednesday is only the aggregate figure with the individual amounts to municipalities coming later.

Paradoxically, this comes as the number of natural gas wells in Pennsylvania increased by 26 percent, up to nearly 5,500.

Shale fees are governed by a complex state-determined formula that can lead to some topsy-turvy results.

"It's not a straightforward calculation, and not many people feel they need to understand it," said Jon Laughner, director of Beaver County's Penn State Cooperative Extension office and avid shale-watcher. "I'd imagine there's a sense of disappointment."

The chief culprit in the $6 million drop is the price of natural gas, which has fallen precipitously as Pennsylvania's production ramps up. Under the state formula, drillers pay less in yearly fees as commodity prices drop, to as low as $40,000 for a new well instead of a high of $60,000.

Older wells also pay less as time goes on, with rates dropping as low as $5,000 per well after 15 years.

PUC spokeswoman Jennifer Kocher reminded that wells whose production is disputed by drillers weren't included in the total, leaving a bit of room for improvement.

"We're working with those producers, going back, comparing lists," she said.
As prices fall, drillers have left northeastern Pennsylvania, formerly the state's shale superstar, for Ohio, West Virginia and several western counties. Since it's tough to make a buck on natural gas alone, they're now looking at deposits of "wet gas," which contain lucrative ethane extras that can be removed and sold separately after processing.

That's helped save Pennsylvania's spot among national drilling plays, holding the state's rig count steady at about 70. Rigs are the mobile devices that are moved about the state to drill wells.

But it's certainly disappointing to landowners, who had hoped the Keystone State's relatively recent debut to the shale industry might give it a bit of beginner's luck. Same for municipal officials, who certainly hoped to see impact fee revenue go up.

"There was an expectation and a hope that since we're still kind of in the embryonic state of development, that we'd see a general increase and not a decrease," Mr. Laughner said.

Oklahoma-based Chesapeake Appalachia tops the list of drillers, owing $27.4 million in impact fees. It's followed by Range Resources, with $24.8 million; Talisman Energy, with $20.2 million; and Shell subsidiary SWEPI LP, with $17.2 million.

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