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Gas Drilling Fees Imposed in Pennsylvania as Price Drops

Written by Larry Roeder, Editor
2012-02-23

Municipalities lose some zoning control in the process

At a time when natural gas prices have dropped to a level we haven’t seen for a few years, Governor Tom Corbett signed into law legislation that will impose an impact fee on gas producers. The new fee has been projected to generate more that $190 million in fees that are retroactive to 2011, and more than $200 million in 2012.

The levy will change from year to year, based on natural gas prices and the Consumer Price Index. While enactment of the fees may have a big benefit for counties in the western and northern portions of Pennsylvania, many are skeptical of the new law and the income it may bring to those counties.

According to a published report, natural gas has gone from an average of $8.85 per million British thermal units in 2008 to $4.39 in 2010 and $3.94 in 2011. In Jan. 2012 the price dropped below $2.50. As of Tuesday, front-month March natural gas futures on the New York Mercantile Exchange were at $2.61 per million British thermal units. Some experts attribute the mild winter as the reason for the recent drops.

The price decrease is cutting industry profits and forcing producers to decrease their activity. There is speculation that the recently passed impact fee legislation may generate less revenue than expected and induce some drillers to move their resources to other states.

The fee will be administered and collected at the state level. Counties will decide whether or not to enact it. County commissioners have until mid-April to enact a fee. If any county chooses not to collect the money, its municipalities will have a 60-day window to override the decision. When more than half of the county’s townships and boroughs pass a resolution calling for a fee, it will automatically be adopted.

The new law requires local municipalities to allow for the reasonable development of oil and gas operations. That includes allowing well and pipeline location assessment operations; banning municipalities from imposing conditions, requirements of limitations on the construction of oil and gas operations that are more stringent than those required of other industrial uses in the municipality; banning municipalities from imposing conditions, requirements or limitations on the heights of structures, screening and fencing, lighting or noise relating to permanent oil and gas operations that are more stringent than those imposed on other industrial uses or land development in the municipality.

In addition, municipalities are prohibited from having a review period for permitted uses that exceeds 30 days for complete submissions or 120 days for conditional use submissions; allowing oil and gas operations, other than activities at impoundment areas, compressor stations and processing plants, as permitted in all zoning districts; authorizing impoundment areas used for oil and gas operations as a permitted use in all zoning districts as long as the edge of the area is not closer that 300-feet from an existing building; authorize natural gas compressor stations as a permitted use in agricultural and industrial districts and under certain circumstances, as a conditional use in all other zoning districts; cannot impose restrictions, other than those in the Pa. Municipalities Planning Code, on vehicular access routes for overweight vehicles; cannot impose limits or conditions on underground operations or hours of operation of compressor stations and processing plants or hours of operation for the drilling of oil and gas wells and related operations.

The impact on local municipal ordinances did not go unnoticed by environmental groups.

Three state senators were targeted by protesters last week for publically voicing their opposition to overturning local zoning rights, but then reversing their position and voting for final passage of the law. They were Sen. Timothy Solobay (D-46) who represented one of five Democratic senators supporting the legislation; Sen. Charles McIlhinney (R–10) and Sen. Edwin Erickson (R–26) had publicly voiced their opposition to overturning local zoning rights, but then reversed their stand in voting for final passage of the law.

According to a press release issued jointly by the Clean Water Action, Pennenvironment, Sierra Club, Delaware Riverkeeper Network and conservation voters of Pa., provisions in the final version of HB 1950 included: Most aspects of oil and gas operations must be allowed in all zones in townships in Pennsylvania, including residential and commercial areas; Well pads and frac pits can be as close as 300 feet to a school, home, or other building; and pipelines must be allowed in all zones in a township, and can be closer than 300 feet to other structures, such as schools and homes.

The only exemption for residential areas is in dense, urban neighborhoods, where a well pad could not meet the 300-foot setback requirement. This exemption is unlikely to help most townships trying to protect residential areas from oil and gas operations.

At issue with some health care professionals was that the original language of the bill did not provide medical professionals with any access to company proprietary information such as chemicals used in drilling and related operations. Under the passed version, health care workers will now be required to sign confidentiality agreements before they can access proprietary information that would help them treat patients who may have come in contact with drilling chemicals. The law does require companies to publicly disclose non-proprietary information, which health care workers can access easily through the website Frac-Focus.org.

Environmental and health experts share differing views than those of public officials and proponents of the new law. The impact of it is expected to be debated for months.

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