Rents and royalties collected on Marcellus Shale production in Pennsylvania have gone from $10.9 million in 2008 to $731 million in 2012, according to a study by the Allegheny Institute for Public Policy.

The AIPP study reports on rent and royalty income for landowners and mineral rights owners as shown in the latest income tax data available from 2008 to 2010 and projects more recent returns based on production, prices and the 12.5 percent minimum royalty in the state.

In 2008 total royalties paid in Pennsylvania from Marcellus Shale production were $10.9 million out of approximately $86.9 million generated by 9.8 Bcf of production, priced that year on the New York Mercantile Exchange (Nymex) at $8.90/Mcf, Frank Gamrat, senior research associate for AIPP said in the May 30 report, quoted by NGI’s Shale Daily.

Gamrat said the report also projects, based on 2012 production volumes of 2.07 Tcf, average prices and 12.5 percent royalties, that land/mineral rights owners collected $731 million out of the $5.85 billion generated by Marcellus Shale production in Pennsylvania in 2012.

According to the tax data through 2010, "Northern tier counties Susquehanna, Sullivan and Tioga each had huge jumps of more than 1,000 percent," Gamrat, said. "In Susquehanna, the amount claimed in 2006 was $8 million and by 2010 it had topped $133 million, a gain of more than 1,500%. In fact, the top 10 counties in terms of growth, seven in the northern tier and Greene, Washington, and Butler counties in the Pittsburgh area, all reported rent and royalty income increases of at least 200 percent."

Seven counties in the Pittsburgh metropolitan area that lie in the southwestern, wet gas area of the Marcellus posted a 107 percen increase in rent and royalty income from 2006 to 2010, the years for which income tax data is available. Washington County led the way with a 289 percent increase, followed by Butler (201 percent). Allegheny, which includes the City of Pittsburgh, posted the smallest increase, 41 percent.

Gamrat said state law, specifically, Act 60 of 1979, stipulates that landowners and mineral rights owners be given a minimum royalty payment of 12.5 percent of the value of the gas "removed or recovered from the subject real property." Gas companies are allowed to deduct transportation fees and post-production costs (but not well fees or impact fees) from royalties.

"To keep this in perspective the [federal] Bureau of Economic Analysis (BEA) notes that in 2008 the amount of personal income in Pennsylvania was about $513 billion. Thus these royalty payments accounted for about 0.002 percent of state personal income," Gamrat said. "But, in the following years that royalty income paid to owners of land/mineral rights in Pennsylvania skyrocketed by more than 6,600 percent while BEA's estimate of personal income in the state for 2012 rose only slightly to just above $556.7 billion. In that year royalty payments from Marcellus Shale accounted for about 0.13 percent of personal income.

"While this is still a very small portion of the total, it has certainly grown over the last five years, reflecting the massive rise in royalty payments...And while the state income as a whole is not boosted significantly in percentage terms, royalty incomes in the counties where drilling and production activity are heaviest are certainly having a measurable effect on the county's total income."

NewsClips:

Marcellus Shale Royalties Rising

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6/17/2013