Unproductive PA Wells Still Liable for Partial Impact Fee

The price for drilling a Marcellus Shale gas well in Pennsylvania that “misses” and is not economically viable may have just gotten a lot steeper. It looks like the state Public Utility Commission (PUC), charged with collecting and distributing the new impact fee under Act 13, is going to levy the fee on exploratory wells that end up not being productive and plugged.

Lackawanna and Luzerne counties may get a cut of the state’s shale drilling impact fee after all.

The state’s Public Utility Commission, which is charged with collecting and distributing the fee, said its interpretation of the law allows the state to levy a fee on Lackawanna County’s two exploratory Marcellus Shale wells, at least for one year.

The same might hold true with Luzerne County’s two wells, even though they were not considered productive and were subsequently plugged and abandoned.

PUC spokeswoman Jennifer Kocher said there may be a possibility for one year’s worth of fees from the Luzerne County wells.

"It would all depend on how the wells fit into the definitions that were laid out by the law," she said.

Encana Oil & Gas USA Inc. drilled two wells in the summer of 2010, one on Route 118 in Fairmount Township and the other on Zosh Road in Lake Township. The company announced in November 2010 that the wells were not economically viable.

Kocher said the potential for Luzerne County and Lake and Fairmount townships to get a share of the drilling revenue for the two wells depends on the definition of "spud," or the actual start of drilling an unconventional well.*

Act 13 assesses a smaller fee for vertical (conventional) gas wells, like the two exploratory wells in Lackawanna County. However, according to the PUC’s interpretation of the Act 13 law, vertical wells are subject to the 20 percent fee in year one regardless of their production, but if they are deemed unproductive (according to the guidelines set out in Act 13), starting with year two they would no longer be liable for the fee.

The [Act 13] law defines a vertical gas well as one that has been hydraulically fractured and produces more than 90,000 cubic feet of gas per day – a definition that the law’s architects said was intended to exclude low- or non-producing wells that are used to assess the quantity of gas in an unexplored region of the shale.

But the law defines an "unconventional well" more expansively, as "a bore hole drilled for the purpose of or to be used for the production of natural gas from an unconventional formation," and the state’s official list of unconventional wells includes many vertical, non-producing wells, along with inactive wells and unsuccessful wells that have been plugged.*

It will be no surprise that the state’s drilling industry groups offer an interpretation that says “dry holes” should not be liable to the fee. But the Pennsylvania State Association of Boroughs says whether or not a drilled well produces, the impacts on the local community in drilling the hole are still the same, and should be compensated.

*Wilkes-Barre The Citizens’ Voice (May 7, 2012) – More shale wells to be levied fee than first thought