Just a year after reaching a record high, the estimated impact fees paid by natural gas drillers will drop substantially for 2023.
The state Independent Fiscal Office (IFO) recently released its annual Impact Fee Estimate, which calculates the impact fees paid by producers at $174 million, down $104.8 million for 2022’s record $278.9 million.
Impact fees on gas producing companies were authorized under Act 13 of 2012, which regulates unconventional oil and gas drilling, in lieu of a several tax that is charged by some other states. It is based on a formula that includes the average annual price of natural gas and the age of the well, with new wells being taxed at a higher rate than aging wells. The bulk of the money is distributed annually to counties and municipalities with gas drilling activity, while the remainder is distributed to the Marcellus Legacy Fund and state agencies.
The IFO report attributes most of the decline - $84.1 million - on the lower average annual price of natural gas during 2023. In 2022, the price of gas was over $6 per MMBtu, which triggered the highest impact fee amount possible. During 2023, that price fell by more than 50 percent to $2.74 per MMBtu.
In addition, new wells are taxed at a higher level than existing wells, and fewer new wells were drilled in 2023 than in any year since the fee’s inception. There were 419 unconventional wells drilled in 2023, well off the 573 in 2022. This was also due to the price of natural gas and producers’ caution in bringing new wells online.
While the total impact fee amount will be lower, it will still be above the all-time low of $146.3 million collected during the pandemic in 2020. The IFO had been warning in its quarterly reports that a significant drop was to be expected in 2023.
Washington and Greene counties in Southwestern Pennsylvania are in the top five in impact fee payments, and most municipalities in those counties receive significant yearly amounts because of the amount of natural gas drilling occurring in the area. In 2023, Washington County received slightly more than $9 million, while Greene received $7.1 million. Most municipalities in these counties also receive substantial yearly payments.
Budgeting for that expected payment has become trickier in recent years as the amounts collected have been on a roller coaster ride due to gas prices, production, and the pandemic. County and municipal officials should be carefully monitoring production data and the IFO reports to have accurate information for budget preparation.