Royalties paid to Pennsylvania landowners for natural gas extraction in primarily eight counties totaled $8.84 billion from 2010 through 2018, according to calculations by the state Independent Fiscal Office (IFO), Kallanish Energy reports.
Royalty payments made in the remaining Pennsylvania counties where natural gas is produced would add another $982 million in royalty payments to the Top 8, bringing the grand total to roughly $9.82 billion.
“Natural gas royalties have been a catalyst for economic growth while providing a boost to multi-generation family farms and countless other hard-working families and small businesses across Pennsylvania,” said Marcellus Shale Coalition president David Spigelmyer.
“With the right policies that encourage the responsible development of clean-burning natural gas, not only with royalty owners continue to benefit, but so will our entire economy – especially manufacturers and our building trade unions – as well as our environment.”
Average royalty was 13.5%
Pennsylvania law mandates a minimum royalty rate of 12.5% of the market value of a natural gas sale. IFO research found the average royalty rate paid in Pennsylvania from 2010 through 2017 was 13.5%.
Total royalties paid per year ranged from a low of $645 million in 2016, to $1.64 billion in 2018. Last year’s total is an estimate by the IFO, based on production gains and growth in average hub spot prices. No per-county royalty totals were available.
Estimated Pennsylvania natural gas royalty income
| County | 2010 | 2012 | 2014 | 2016 | 2017 |
| Susquehanna | $134 million | $105million | $272 million | $119 million | $204 million |
| Washington | $176M | $182M | $427M | $181M | $264M |
| Bradford | $161M | $123M | $230M | $63M | $104M |
| Greene | $59M | $55M | $143M | $90M | $129M |
| Lycoming | $47M | $62M | $78M | $18M | $29M |
| Wyoming | $58M | $32M | $108M | $29M | $61M |
| Tioga | $95M | $48M | $58M | $30M | $46M |
| Butler | $85M | $220M | $138M | $50M | $115M |
| All other counties | $90M | $92M | $162M | $65M | $106M |
| Total | $905M | $919M | $1.62 billion | $645M | $1.06 billion |
(Source: Pennsylvania Department of Revenue, personal income tax statistics, Pennsylvania Independent Fiscal Office)
Three of the Top 8 counties in terms of royalties paid were in Western Pennsylvania, a region which includes both dry and wet gas, and five counties are in the northeast part of the state, a region which produces dry gas only.
Washington County leads the way
Producers in Washington County, just south of Pittsburgh, paid the most in royalties in 2017, $264 million, followed by Susquehanna County in the northeast, $204 million, and Greene County, in the very southwest corner of the state, paying $129 million in royalties in 2017.
The analysis estimates natural gas royalty payments totaled $905 million in tax year 2010, reached $1.62 billion in tax year 2014, and then declined to $1.06 billion in tax year 2017.
The collapse of natural gas prices in 2015 and 2016 motivated the large reduction in estimated royalty payments, although statewide production increased in both years. For 2017, natural gas prices recovered and estimated royalty payments did too.
2018 royalties are projections
For tax year 2018, the IFO analysis projects a further increase in royalties paid to Pennsylvania landowners. Compared to 2017, the average spot price at major Pennsylvania hubs increased by more than one-third, while total output increased by 14%.
If those gains were passed through to landowners, then royalty payments would increase by roughly 50 to 55%. The projection assumes producers deduct a similar amount of post-production costs in 2018 as deducted in 2017, according to IFO.
The estimates from the enclosed table represent a lower bound for natural gas royalty payments for two reasons:
* There may be cases where leaseholders reside and file returns from counties (or states) other than the land under contract and do not reside in one of the top eight producing counties shown in the table. This outcome would cause the methodology used to understate royalty payments.
* The estimates only reflect payments to individuals who file a Pennsylvania personal income tax return and report such income. However, some payments could flow to companies report royalty income as net profit on the personal income tax return.
This post appeared first on Kallanish Energy News.