Court clarifies ‘stripper’ wells, says shale driller does not owe impact fees

An oil and gas company does not owe annual Marcellus Shale impact fees for wells that produced a small amount of gas during some months, the Commonwealth Court of Pennsylvania ruled on Wednesday, reversing a decision by the state Public Utility Commission that the company had failed to pay nearly $500,000 in fees.

The court sided 5-2 with Kittanning-based Snyder Brothers Inc. and the Pennsylvania Independent Oil and Gas Association. It found that the company does not owe the fees on two dozen wells that produced less than 90,000 cubic feet of gas per day during at least one month of the year in 2011 and 2012.

Impact fees are not levied on socalled stripper wells, which state law defines as unconventional gas wells “incapable of producing more than 90,000 cubic feet of gas per day during any calendar month.” The PUC said the law meant Snyder Brothers owed the fees on wells that produced more than the threshold amount of gas during at least one month of the year.

The judges disagreed. “We conclude that the word ‘any’ in the term ‘stripper well’ unambiguously means ‘any’ or ‘one’ and not ‘all’ or ‘every,’ Judge Patricia McCullough wrote for the majority.

The court decision reverses the PUC’s conclusion that Snyder Brothers owed impact fees as well

as penalties and interest.

Judges Michael Wojcik and Joseph Cosgrove dissented, writing that the majority’s interpretation of the law would encourage drillers to suppress production during one month in order to avoid paying impact fees for the year.

A PUC spokesman said the commission is reviewing the court’s ruling. He did not say whether the commission has calculated how many more wells will be exempt from the impact fee under the court’s definition of “stripper well.”

Shale gas companies collectively paid nearly $188 million in impact fees for eligible wells for 2015, the most recent year available. There were 605 horizontal wells and 644 vertical wells classified as stripper wells that year and another 35 were considered “disputed vertical” wells because of the disagreement over the definition, according to the PUC.

The judges did not resolve whether the impact fee amounts to a tax, as Snyder Brothers had argued. Instead, the majority wrote that it could “rest on narrower grounds” because the law imposes a penalty for unpaid impact fees, which required the court to interpret ambiguous terms in Snyder Brothers’ favor.