Pa. board votes to raise shale well permit fees 150%

Post-Gazette Harrisburg Bureau

HARRISBURG — Permit fees for shale gas wells in Pennsylvania will more than double under a rule change approved by a state environmental board on Tuesday.

The fee to drill a new Marcellus or Utica shale well will rise from $5,000 to $12,500 — the highest in the U.S.

Regulators with the Department of Environmental Protection said the hike is necessary to maintain the program that permits and inspects the commonwealth’s vast number of new and old wells.

Permit fees are the program’s primary source of funding, but applications have declined significantly in recent years.

At the increased rate, the fee will amount to 0.16% of the $8 million it costs to drill an unconventional well, DEP said.

Critics of the increase say it is high enough to discourage companies from drilling new wells and may only compound DEP’s funding problems by driving permit applications even lower.

The increase must still be reviewed by the environmental committees in the state House and Senate and Pennsylvania’s Independent Regulatory Review Commission before it can take effect.

The department has received far fewer permits than the 2,600 a year it counted on getting the last time it raised fees in 2014.

Companies are seeking to drill fewer wells as gas prices have declined and operations have become more efficient. New wells stretch much farther into rock layers underground and extract much more gas from them.

Since 2014, DEP’s oil and gas program has shrunk from 226 to 190 employees and its operating costs have been reduced by 38%, Scott Perry, deputy secretary for the Office of Oil and Gas Management, said at an Environmental Quality Board meeting.

Mr. Perry said the fee increase is necessary just to maintain the program in its current, reduced state.

“We are failing to meet many of our goals — our inspection goals, our permit review time frame goals, and our policy and program development goals,” he said. “We have IT projects that are going unmet, often because we cannot fund the positions necessary to do that work.”

He said the program has determined it would need 49 additional positions to meet its goals.

The new fees are based on the assumption that DEP will receive 2,000 permit applications a year, but the agency hasn’t hit that target since 2015. Since then, DEP has received an average of 1,750 applications each fiscal year. This fiscal year, it is on track to receive fewer than 1,600.

Despite that, Mr. Perry said the program “will have the revenue sufficient to maintain the program at current staffing levels for the next three years.”

That is in no small part because of a windfall of $25.6 million the oil and gas program will get from the $30.6 million fine paid by Energy Transfer Corp. for the September 2018 explosion of the Revolution pipeline in Beaver County.

The oil and gas program’s budget is about $25 million per year.

During the public comment period for the proposal in 2018, 32 Republican state representatives wrote to oppose the increase, saying it will “worsen the economic and competitive climate of Pennsylvania.”

Marcellus Shale Coalition president David Spigelmyer said the Robinsonbased trade group supported past permit fee increases because the industry wants to ensure “the agency’s professionals have the resources they need to effectively get the job done.”

“However, we remain concerned that the timing for this significant 150% fee increase will impact the number of permit submissions being requested and discourage job-creating investment in the commonwealth,” he said.

DEP acknowledged in supporting documents for the rule change that Pennsylvania’s permit fee will be higher than in other states. But the agency said other states rely on severance taxes or other types of fees to fund oil and gas regulation.

Mr. Perry said his program has evaluated other fee structures that might better support oversight of wells that keep producing for decades or more, like an annual fee instead of a onetime permit fee. That kind of shift would require a change to the law, he said.

“I think we need to start contemplating different ways of funding the program because this is probably one of the worst ways to do it,” he said.