PA Regulators Raise Well Permit Fees to Counteract Low Impact Fee Revenues and Permit Applications

The state and its municipalities are being impacted by the natural gas downturn. Both Act 13 impact fees and permitting revenues are suffering, which translates to sharp decreases in money destined for state agencies, programs, and local communities.

Reports from PA’s Independent Fiscal Office indicate that 2019’s impact fee collections will be significantly lighter than previous years. The IFO reports that fee revenues will be $53.6 million less than collected in 2018. This is a stark contrast the $33.4 million increase seen between 2017 and 2018. The impact fee is calculated using various pieces of data including the price of gas, production figures and the age of the well. What makes 2019 different, however, is the sharp decrease in new wells being spudded in the Commonwealth. As it is structured, new wells are subject to larger fees than older wells, with new wells paying approximately 70% of their impact fee within the first three years of their life cycle. With the lack of operators seeking permits for new wells, the Department of Environmental Protection, an already underfunded state agency, will also see drops in revenue.

Pennsylvania’s regulators have responded to declining well permit applications in a recent vote to make permits more costly for the industry. Previously, permits for new shale gas wells cost around $5,000. Recognizing the downturn in rig counts, and highly productive existing wells, the state environmental board approved raising fees a reported 150 percent to $12,500. The new fee structure still needs legislative approval.

The increased fees will go toward various regulatory efforts, including well site inspection, a task that Scott Perry, the deputy secretary for the Office of Oil and Gas, has admitted is lackluster. The steep rise in permit costs aims to alieve these issues, but could also be met with even fewer permit applications as the industry focuses on maximizing the performance and efficiency of existing wells, which could only compound the current issues.