Drilling Tax Ticker Methodology

Download a more detailed explanation of the Drilling Tax Ticker Methodology.

Read more about the Ticker.

June 3, 2010

The Drilling Tax Ticker is an estimate of the total revenue lost by the Commonwealth since October 1, 2009 as a result of not having a natural gas severance tax in place. Governor Rendell’s 2009-10 proposed budget included a proposal to tax natural gas extraction at the same rate as neighboring West Virginia beginning on October 1, 2009. The Ticker shows the fiscal impact of not enacting the tax. This foregone revenue could have been helpful in filling the state’s current revenue shortfall, as well as providing needed funding for state-provided services (such as health care, education, and public safety), as well as helping to remedy costs imposed on local governments and environmental damage from natural gas development.

The Drilling Tax Ticker uses monthly Department of Environmental Protection (DEP) drilling reports and the average price of natural gas to estimate the revenue that has been lost from not enacting the severance tax as first proposed. Key features of the Ticker:

  • Tax Rate. The estimated tax is calculated using the rate proposed by Governor Rendell, 5% of the price of natural gas sold plus a fixed charge of $0.047 per thousand cubic feet of natural gas produced. This is the same tax rate as exists in neighboring West Virginia.
  • Marcellus Shale wells. The Ticker includes estimated tax from natural gas production from Marcellus Shale wells. The Ticker includes 1,246 Marcellus Shale wells operating as of May 2010 and adds 77 new wells, as indicated by DEP drilling reports, in June. The number of Marcellus Shale wells will be updated each month.
  • Shallow wells. Estimated tax from shallow, traditional natural gas wells. At this time, there are an estimated 36,666 producing shallow wells in Pennsylvania. The number of operating shallow wells is also updated each month using DEP reports.
  • Natural gas price. The price of natural gas used to calculate the tax is taken from the Henry Hub price, an industry standard. This will be updated each month, as prices of natural gas fluctuate significantly.

Read a more detailed explanation of the methodology used for the Drilling Tax Ticker.