Pennsylvania

Energy. Environment. Economy.

Gas royalties from state forest land drop sharply

Low natural gas prices mean the state will receive less royalty money from drilling in public forests this year.

Joe Ulrich/ WITF

Low natural gas prices mean the state will receive less royalty money from drilling in public forests this year.

Pennsylvania is getting a lot less royalty money from Marcellus Shale drilling on state forest land this year due to the low price of natural gas, according to a new analysis from the state’s Independent Fiscal Office.

“We’re seeing a large drop off, year-over-year, in the royalty payments,” says IFO director Matthew Knittel. “For the first six months of this fiscal year, royalty payments are about $31 million. That’s down 52 percent from the same six-month period last year.”

The IFO predicts royalty revenue will continue to decline in the near-term but gradually recover as companies add more pipeline capacity to deliver gas to new markets. The IFO is charged with providing nonpartisan budgetary analysis to the state.

“Some of the pipelines are coming online even now,” says Knittel. “And a few more are scheduled in 2016 and 2017 and we do think that will relieve the conditions and allow for a price appreciation.”

The royalty money goes into Pennsylvania’s Oil and Gas Lease Fund. In recent years, the state Department of Conservation and Natural Resources (DCNR), which manages drilling in public forests, has relied heavily on the fund to support its general operating expenses. At the end of 2015, there were 646 Marcellus Shale wells capable of producing royalties in state forest land.

“It does introduce volatility to the DCNR budget,” says Knittel. “We’re seeing this play out in other states that rely heavily on severance taxes such as Alaska, North Dakota, and Texas. They’re also having a lot of volatility in their budgets this year.”

In 2015 leases on nearly 40,000 acres of state forest land were terminated for failing to meet the terms of the contracts. According to DCNR, in most cases gas companies were unable to drill a well within the initial five-year time frame required in the lease, and had no plans to drill additional wells in the near future due to low prices.

 

Comments

  • kenneth weir

    Gas production, on average, drops almost 60%after 3 years, thus the state forests are about to resemble a tailors pin cushion. We cant drink money!

    • bill

      If you’d do some homework you’d find that the vast majority of the wells are drilled outside the actual game and forest land surfaces to reach the gas UNDER the state lands. No pincushions.

      • kenneth weir

        Bill, maybe you should sharpen up on well density , by Professor Ingrafea, a founding father on modern day fracking and regardless , I repeat that on average gas wells drilled today will have drop in production by 60%, not my figures but the states very own DEP.Once Harrisburg gets budget money tied to this industry the whole state will resemble a pin cushion, except Bucks and Montgomery counties which have a state mandated moratorium

        • bill

          In the last 100 years over 350,000 conventional vertical gas and oil wells have been drilled in PA. About 80,000 are still producing. No one has ever used pincushion to describe these wells. In contrast, since 2008 there have been 4,657 unconventional horizontal wells drilled. That hardly qualifies as “pincushion” given that Marcellus wells account less than 2% of the total “pins”. No one is suggesting the Marcellus wells will ever come close to the 350,000 conventional well holes already in the ground.

          • kenneth weir

            Maybe you should take a look at google earth and see where this industry has been and then look at the budgets of the governments that have hosted them. These are multi national corporations who have put the target on us. Socializing the costs and privatizing the profits. Why only 5% tax, why not 20% or more, lets at least have a sugar with the poison pill.

          • bill

            Ok. I looked and I see in PA 9,314 acres taken up by well pads. I also see 7,809,244 acres taken up by farm land. Quite a difference. Farm land which, by the way according to the EPA and DEP contributes more to water pollution from fertilizer and animal waste runoff than any well pad could ever cause even if they wanted to. Would you suggest we tax farmland for socializing the costs of that pollution?

          • kenneth weir

            Not quite sure of your numbers of acres used by fracking, but if you had taken the time to just do a simple google search you might have noticed that from 2005-2013 the o/g industry has dominated at least 33,000 acres and by now much more. But I would like to know your felling’s about Bucks and Montgomery counties being exempt from fracking.
            You make a good point about the agro pollution but two wrongs never make it right, and given a choice I would always side with the local farmers. These are multi national corporations whose only mission is to make as much money in as short as time possible

          • bill

            There are currently 4,657 Marcellus surface well pads in PA. (as per DEP) Each covers about 2 acres once completed. The 33,000 acres you refer to is probably the undergound area from which the gas is withdrawn. BTW: the first successful Marcellus well in PA was not until 2008 not 2005. You really got a thing for corporations, don’t you.
            As far as Bucks and Montgomery the ban is purely symbolic since the Marcellus formation isn’t there.
            https://www.google.com/search?q=marcellus+formation&biw=1524&bih=673&tbm=isch&tbo=u&source=univ&sa=X&sqi=2&ved=0ahUKEwj-2-SS1tLKAhXJ7R4KHfO4CPkQsAQIQQ&dpr=0.91#imgrc=T0dMr0dLeXM80M%3A

          • kenneth weir

            Disagree with you on the size, but those are just numbers. You say that I have a thing for corporations, but I could say the same for you. Bucks and Montgomery are the only exempted counties in the state, by executive and legislative order. Maybe some very special people reside there, what do you think?
            When corporations can pump millions and millions of dollars into the pockets of undeserving politicians and then have laws written on their behalf by these same politicians then you are playing a rigged game. Playing in rigged games is only good when you are on the side of the rigged, which I am not. You may be I am not sure. The only people that I have met who argue for this industry are those who have a financial stake in it. I will assume that you are on that side of the fence.
            Fyi, a very good friend of mine had his farm drilled and his pond polluted in 2005, that was in Washington County, so I think your numbers , once again maybe a bit twisted.

          • bill

            I am on the side of a fact based adult conversation about an important economic driver in PA. They are not “just” numbers. They are a factual representation of drilling activity. The Bucks/Montgomery ban was a political move to pacify some anti drilling constituents. It mean nothing because there are no Marcellus formations there. On corporations, of the 144 Marcellus drillers only 15 are corporations. The large majority are sole proprietors, partnerships, family owned, or LLCs.

          • kenneth weir

            Why would an already stressed legislature ban drilling in Bucks and Montgomery , when there is no Marcellus there? To say that is to placate the anti drilling crowd suggests a bit of game playing. Not an adult activity , sounds childish doesn’t it? The major players are mega corps and eventually, as soon as we ship this glut to Asian and European markets, I would be willing to bet you a nickel that most or all will be gobbled up by the mega corporations that are very global in scope. These are not the corporations who have an allegiance to this country, you have to agree. Also once this mainline to export is completed ,our pocket books will be pumped dry by this benevolent industry. They have a big ax to grind and will make the people pay who have the audacity to question their business motives in a court of law.
            BTW, if there is no harm no foul by this industry ,what was the urgency to pass the Haliburton Loophole?
            What do say about the wells being drilled on my friends farm in 2005?

          • bill

            First off the Halliburton loophole is a myth. See your expert Professor Ingraffea on the video at the end of this article.
            http://naturalgasnow.org/hydraulic-fracturing-2/halliburton-loophole-isnt/
            Second, I can’t comment on your friend’s farm unless you give me his name or the drilling company involved.

          • kenneth weir

            Ok, I give up. You win, you have changed my thinking about this industry. I take back every disparaging remark that I have made. You have convinced me that this is , in fact , a benevolent industry whose number one concern is the health , safety and welfare of the host communities. You have convinced me that they have played no role in the political process in this state and country. You have convinced me that they have never polluted any drinking water or contributed in any way to the poor air quality that we have. You have convinced me that all of the attorneys who brokered Act 13 were right and the Supreme Court of Pa was wrong. You have convinced me that the seizing of property by eminent domain is a good thing. You have convinced me that the jobs created is much, much higher than reported. You have convinced me that they have contributed an overwhelming amount of money to the state budget. You have also convinced me that the passing of the Halliburton loophole was a good thing. You have convinced me that the bomb trains traveling through our neighborhoods is a good thing. and you have finally convinced me that when this resource ends up in Europe and Asia, that it is truly for our “energy independence” Thankyou for the very thorough lesson, who should I send the check to Tom Sheepstone.?

          • bill

            Now folks, do you see what I mean about an adult conversation?
            Just one more thing skippy, just who have you convinced with your pathetic childish sarcasm?

  • bill

    So, the “free ride” drillers paid the state $124 million last year and $31 million so far this fiscal year? Gives free a whole new meaning.

    • Peter Henry

      There’s a difference between royalties paid to the landowner (the Commonwealth in this case) and extraction taxes which every other state charges. No one has claimed that the Commonwealth doesn’t earn royalties for drilling on Commonwealth land.

      • bill

        No one has claimed the Commonwealth doesn’t earn royalties? Do a Lexus word search and “free ride” comes up thousands of times in discussions and articles on drilling. Royalties, just like taxes come out of the driller’s bottom line.

        • Peter Henry

          Right, because in PA drillers don’t pay an extraction tax. *Every* other state taxes oil & gas extraction within the state. Drillers get a free ride on this in PA.
          Rev royalties – Do you think paying the landowner to drill on his land is a bad thing? You seem to think it’s unfair to the driller.

          • bill

            It’s totally fair to pay the landowner royalties whether it be a private citizen or the state. My objection is ignoring what the industry pays in royalties ($600 million so far) and impact fees ($900 million so far). Free ride suggests they pay nothing which is untrue.

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