Pennsylvania's state Senate has set a template for the rest of the Northeast by approving a measure to impose annual fees on natural gas companies for each natural gas well they drill.
The Republican-controlled Senate passed the fee law Tuesday by a 31-19 vote. The Republican-controlled House is scheduled to take up the bill Wednesday and pass it.
Pennsylvania joins Ohio and Maryland as states considering a fee structure on natural gas drilling, while New Jersey contemplates an outright ban on the practice. New York is still reviewing comments to its impact statement and proposed industry regulations, and could open the state up to hydraulic fracturing this year. All these states are seeking to tap a potential bonanza from gas in the so-called Marcellus Shale basin.
If enacted, the Pennsylvania law would require natural gas companies to pay an annual fee for 15 years for every well drilled that subsequently extracts more than 90,000 cubic feet of natural gas.
If a well produces less, it would not be subject to a fee. The fees will reflect market gas prices and gradually decline as the 15 years progress. In the first three years, fees can range between $25,000 and $60,000.
The fees would be attached to wells that for the most part hydraulically fracture or frack, rock by injecting thousands of gallons of water, sand and chemicals into the ground. The fees are expected to generate close to $200 million for Harrisburg this year, Bloomberg reported. Proceeds will be given to counties and municipalities in which drilling takes place.
To date10,020 permits have been issued to companies since 2005 when the Marcellus Shale play took off. Since then, 4,676 wells have been drilled with 1,646 wells actively producing natural gas in the region.
The legislation is being praised by state Republicans as a means to reel in the natural gas industry, and tap into the company's profits. Gov. Tom Corbett, a Republican, said he will sign the new law if it passes the House.
Counties will have the final say on imposing a fee, but if they don't, they will not receive any of the money generated by the fees imposed in other parts of the state.
Pennsylvania Democrats have said the fee structure is too lax on natural gas companies.