How Marcellus Shale gas came to be tax-exempt in Pa.

This is a real gem of an article published by the Philadelphia Inquirer. This is the sort of writing that needs to show up more often and in more papers in smaller regions of Pennsylvania. If you’ve been wondering how the heck the natural gas industry has gotten away without being taxed and why Governor Rendell changed his mind about that tax when it came time to pass a budget, look no further. This article explains most of it in easy to understand details and my oh my how political it is!

Desperate for revenue, Gov. Rendell chose not to tax the “gold rush.”

By Mario F. Cattabiani and Amy Worden

Inquirer Staff Writers

HARRISBURG – All through Pennsylvania’s 101-day budget impasse, Gov. Rendell spoke of pain.

A recession-weary state had to tighten its belt. Revenues had to rise – income tax, sales tax, new taxes on whole industries. “We can’t get this budget resolved,” Rendell said, “without everyone feeling some pain.”

But when the budget was finally signed Oct. 9, one industry came away pain-free.

The natural-gas industry’s leaders and lobbyists beat back Rendell’s proposal to tax gas as it is pulled to the surface from the rich black-rock reservoir known as the Marcellus Shale.

So, as drilling rigs are sprouting in the state’s northern tier and southwestern corner, the gas those rigs are extracting still isn’t taxed. That makes Pennsylvania unique among the 15 states that produce the most natural gas.

What’s more, the industry persuaded Harrisburg to lease more public land to gas drillers – even as the state’s budget for environmental protection was being sharply cut.

What happened to Rendell’s gas-tax proposal?

He says the industry made good arguments for staving it off. He did not want to slow the “gold rush,” as he called it, of jobs and commerce the drillers would bring.

One legislator came away with a more cynical view.

“The same old influential interest groups getting their way,” said State Rep. Greg Vitali (D., Delaware). “It was just another day in Harrisburg.”

What follows is a closer look at some key moments in the short life of Rendell’s proposal to help balance the budget by taxing natural gas.

Tapping “the gold rush.” As Rendell prepared his Feb. 4 budget address, a boom was under way. Natural-gas industry representatives were fanning out across the state, securing leases and drilling wells at twice last year’s pace.

Rendell, a policy wonk, did his homework. He spoke with Gov. Joe Manchin III of West Virginia, a state that also sits atop the Marcellus Shale and has taxed natural gas for years.

In his budget address, Rendell proposed to tax gas extracted in Pennsylvania.

Rendell said Manchin, a fellow Democrat, had assured him that West Virginia’s tax did not “inhibit gas extraction and that it is continuing at a record pace, and it’s reaping critically needed revenues so the state can provide services to its citizens.”

Rendell’s plan matched West Virginia’s – a 5 percent tax on the value of natural gas at the wellhead, plus 4.7 cents per 1,000 cubic feet of natural gas extracted.

By Rendell’s estimates, such a tax could raise $107 million for Pennsylvania in its first year, helping fill a billion-dollar budget gap.

In a recent interview, Manchin described what he said to Rendell months ago.

“The Marcellus Shale is a tremendous producer. A severance tax will not deter” the drillers, Manchin said. “Believe me, if we didn’t have the gas, they wouldn’t be here.”

Manchin said he had faced industry complaints in 2005 when he proposed to expand the tax, with some companies threatening to leave.

He offered to have the state buy up their leases “so you don’t lose one penny.” No one took him up on his offer.

Skin in the game. By spring, Rendell’s tax proposal was the talk of the industry. In a June 1 panel discussion held by a New York investment firm, four executives spoke of what might happen next in Pennsylvania.

They talked of the Marcellus “play” – industry parlance for a focused drilling campaign. Rich Weber, president and chief operating officer of Atlas Energy Resources of Pittsburgh, pooh-poohed Rendell’s tax proposal.

“I think the shot over the bow from the governor was just that. He wanted to spark discussion,” Weber said, according to a published transcript. “I think the legislature is going to kill it for this year. It may be inevitable down the road but who knows.”

Jim Fraser, senior vice president of Talisman Energy Inc. in Calgary, Alberta, did some math. “We have encouraged the state to lease some more of that land,” he said, adding that his “back of an envelope” figures showed the state could raise more money by leasing land to drillers than by taxing the gas.

Chad Stephens, senior vice president of Range Resources Corp. of Texas, weighed the pros and cons.

“Maybe at some point in the far-out future if they introduce a severance tax, once the play gets some legs, that’s a different story,” he said. “But if they do implement the tax, at least the government will have some skin in the game.” State officials might become “more cooperative and try to help the play along.”

Murry S. Gerber, chairman and chief executive officer of EQT Corp., spoke next.

“Chad said it right. Skin in the game,” Gerber said. “The local governments need to get some of this money back. I mean, we are on their roads.”

But the state had to be flexible, he said. “If it’s all take and no give . . . we should just say no as long as we can.”

The meeting. Four days later, Gerber sat with his aides and state officials in his company’s sixth-floor conference room in Pittsburgh. His guests included Rendell.

Gerber knew the governor well. He’d donated $30,000 to Rendell’s 2006 reelection fund, records show. Last October, Rendell went to Pittsburgh with a check of his own – $2.8 million in state grants and tax credits to help Gerber’s company expand operations and add 354 jobs.

Gerber requested the June 5 meeting. He hoped to convince Rendell that the state should consider all the various natural-gas issues – wastewater treatment, leasing royalties – and not just a tax, said Kevin West, managing director of external affairs and one of four EQT executives at the meeting.

Gerber did most of the talking. Rendell asked questions. “You could see the governor turning a little bit” to Gerber’s pitch, West said last week.

Rendell did not say he would abandon the tax. At the meeting’s end, he said he would create a task force of stakeholders – legislators, environmental officials, industry executives – to examine Marcellus Shale issues.

“We were very pleased with that,” said West. “We felt he adopted our position.”

The study. As the summer rolled on and the budget impasse deepened, the industry made its case in Harrisburg, spending more than $1 million to lobby legislators in the first half of the year alone, state reports showed.

Foes of the gas tax began citing a Pennsylvania State University study, “An Emerging Giant: Prospects and Economic Impacts of Developing the Marcellus Shale Natural Gas Play.”

The study said the tax would backfire.

Marcellus Shale drilling in Pennsylvania was in “the takeoff phase,” the study said. It concluded that a severance tax would decrease revenue by reducing drilling and slowing job growth.

Without the tax, the study said, the Marcellus reserve could become a bonanza for the state “if pro-growth policies are pursued that unleash the entrepreneurial spirit.”

The study’s primary author, Robert Watson, said Friday that the shale contains enough gas to make Pennsylvania “an OPEC nation.”

Watson, an emeritus professor of petroleum and natural-gas engineering, also acknowledged that the industry had funded the study.

The Marcellus Shale Committee, a group of more than 50 natural-gas and drilling companies, commissioned the study and paid Penn State about $100,000 for it, he said.

But one version of the study that circulated in Harrisburg did not mention the funding source. Subsequent copies did. Watson said the omission had been simply a mistake made in his rush to publish.

Pennsylvania’s environmental community lashed out at the study as a tool of a deep-pocketed industry. Even the state’s top conservation official questioned its findings.

At a Marcellus Shale seminar in August, the acting secretary of conservation and natural resources, John Quigley, rose to introduce Watson. Quigley also told the audience – a citizens’ advisory panel on environmental policy – that Watson’s study was unsubstantiated by facts.

That prompted Watson to stand up and yell, twice, “That’s bull-.”

Quigley remembers the meeting. “I pointed out that the study was paid for by the industry, and that any suggestion that a severance tax would strangle the infant industry in its crib strains credulity,” he said Friday.

Watson stands by his findings. “The procedure we used was scientific,” he said. “We would have come up with the same answers regardless of who paid for it.”

The surprise. Until August, there was no change in Rendell’s public stance. He wanted the tax.

But in a briefing for reporters Aug. 31, the governor said, “It won’t be in the mix this year.”

Rendell said industry executives had convinced him that imposing a tax now would stunt drilling. Also, he said a drop in the price of natural gas made the tax impractical. And Senate Republicans were so opposed to the tax that it would not pass.

It would have to wait until next year, Rendell said.

“We felt we should let the industry get off to a good start,” he said, “and that surpasses our need for money.”

His change of position was news to many – including Steve Crawford, Rendell’s chief of staff. “The governor’s press conferences are always newsworthy,” Crawford said last week, “and sometimes they are even newsworthy to those of us closest to him.”

His switch also surprised his party’s lea   ders in the legislature, who made a last-ditch effort to revive the tax before the budget was signed.

Rendell declined requests for an interview for this article, but he authorized aides to describe several meetings he had with industry officials.

Gary Tuma, Rendell’s press secretary, said the governor had changed his mind on the tax in July, but had not told aides at that time.

As for the Marcellus Shale task force that Rendell told Gerber he’d create: The governor abandoned the idea because he’d decided to nix the tax for this year, Tuma said.

The tax fight is over for now. But the industry is still stockpiling resources for future contact with Pennsylvania officeholders.

Range Resources, the Texas driller, recently hired away a top Rendell aide to be its vice president for government relations and regulatory affairs. K. Scott Roy had been Rendell’s executive deputy chief of staff and his liaison to the natural-gas industry and environmental groups.

Range Resources also hosted a luncheon this month near Pittsburgh for legislators from both parties. After sandwiches, the dozen legislators toured a drilling site.

Among those at the lunch was State Rep. Timothy J. Solobay (D., Washington), an unabashed natural-gas cheerleader. He’s seen drillers transform his district. Steamfitters and welders are getting work. Job-training and truck-driving classes are full.

Natural gas “is the new steel,” said Solobay. “They all told me is that severance [tax] is coming,” he said of industry executives. “They are only asking for a couple of years to get the infrastructure in place.”

State Sen. Jake Corman (R., Centre) has seen drill rigs rising in his district, too. Eventually, Corman said, a tax could help towns defray the related costs. “I think a day will come when there’s a severance tax,” he said. “I just didn’t think that day was today.”

Others are less sanguine. “This was the best time to do it,” State Rep. David K. Levdansky (D., Allegheny) said of the tax. Next year, he said, “the industry will just dig in their heels even harder in hopes that a Republican governor more sympathetic to their cause wins election.”

In June, Range Resources launched a political action committee in Pennsylvania. Nine executives put in a total of $49,500. The PAC’s first donation, for $5,000, went to a Republican campaign fund begun by state Attorney General Tom Corbett.

He’s running for governor next year.

Devil in details of state budget

http://www.observer-reporter.com/or/editorial/10-21-Devil–editorial

I know this article isn’t thick with info about the gas industry but so much of the PA budget reflects the true thoughts and ideals of our state legislators and I just couldn’t resist posting this link. Plus, the comments at the bottom make some good points and some are just good for a laugh, if you’d rather do that than cry.

Pennsylvanians Proove Their Love for Their Forests!

It seems that all the phone calls, letters and emails have paid off…for now at least. Thank you to all of you who made your voices heard over the past two weeks! Details are in the article. I am also including the link for the article here because it is longer than what I have copied here.

http://www.gantdaily.com/news/43/ARTICLE/62511/2009-10-05.html

Rep. George: State Forests Win Reprieve

HARRISBURG – State Rep. Camille “Bud” George, majority chair of the House Environmental Resources and Energy Committee, says Pennsylvania’s state forests won a reprieve with passage of House Bill 1531.

“The state House of Representatives said no to changing our state forests from natural treasures to cash cows,” said Rep. George, D-74 of Clearfield County. “The voices of countless hunters, anglers and outdoor enthusiasts were heard, although the battle to protect our outdoor heritage is far from over.”

Rep. George said the fate of state forests remains up in the air, and the proposal to lease state forestland could resurface.

“The state Department of Conservation and Natural Resources has a prudent system of leasing state land based on sound management practices, not profiteering,” Rep. George said. “To force-feed tens of thousands acres of land owned by the people of Pennsylvania – originally as much as 390,000 acres – is a perverse ‘public option’ for the gas industry.

“A modest tax on gas drillers while continuing prudent forest-management practices would serve Pennsylvania better than putting price tags on public lands,” said Rep. George, whose language establishing a severance tax on gas drillers in Pennsylvania was adopted in HB 1531.

We’re All Voting for No-Sylvania if We Remain Silent

A friend sent me this article this morning. I liked it and even though a lot of what makes people agree with one side or the other comes from opinions as to what is best for the state of PA…..there are too many legislators who can only see a resource in dollar signs. Yesterday I called my state representatives, Scarnati and Baker, to let both of them know that I was supportive of a severance tax and wanted the money from that tax to be put into a budget where the majority of those funds would be distributed amongst the agencies that care for our natural resources. DCNR, The Fish and Game Commission and other organizations that act as stewards for our forests and streams. I spoke to each representative’s  secretary and neither were very helpful. Both made a note of my concern but with an air of unimportance and Matt baker’s secretary tried to tell me that they would not be voting on any such bill that might make amendments to a House bill that would distribute money in the way I have described above, but there is one and I’m not the only “lunatic tree hugger” that knows about it.
Our legislators are doing us a huge dis-service by not listening to our voices and opinions and they’re intent seems to be to sell out the PA Wilds to the gas and oil industry to make a quick buck. There are a few folks in politics doing their best to change this tide but they may not be enough. They are making an effort to fight for all of us. To keep our rights of land and tax money as ours, the people of Pennsylvania, and we should do all we can to help them out by calling or writing to our local representative, Matt Baker, and make sure he understands that we care about our land and our water. Make sure he knows that we know what’s going on and we do have an opinion and if he wants to actually represent the people in his district, as his title proclaims, then he needs to listen and think and do his job and not just vote with the flow when he gets to Harrisburg.
By Jan Jarrett (President and CEO Citizens for Pennsylvania’s Future (PennFuture)
Published: September 30, 2009

If the state budget negotiators have their way, the core of what makes Pennsylvania, Pennsylvania – our forests, which gave us our very name – will be destroyed. All because our elected officials are unable to stand up to the million dollar lobbyists of the gas and oil industry.

It all started when Gov. Rendell released his original budget, way back in February. As part of the austerity budget, Rendell said that these bad economic times called for new sources of revenue. And one of the sources Rendell was offering was to charge a severance fee on the natural gas that was being extracted from the Marcellus Shale formation.

This was hardly a radical stance. Every other major gas-producing state has such a fee, including the radical outposts of Texas, Louisiana and Arkansas. And the multi-national corporations who dominate the drilling industry happily pay the fee in all those other states. So the severance fee was a no brainer, at least initially. The only disagreement was where the money would go – all to the general fund, or with some reserved for the local communities that “host” the drillers, the environment, and our fish and boat and game commissions.

But that was a million dollars ago. Once the tassel-shoed lobbyists of Chesapeake Energy, Range Resources, Conoco Phillips and other drilling-related business interests got their sticky fingers into the budget negotiations, suddenly these gas drillers were an “infant industry” and any severance tax would kill them as sure as a stake through their cold hearts. It turns out that the lobbyists were really good at their jobs. When the doors to the backroom blew open, the budget proposal not only had no severance fee, it required the Department of Conservation and Natural Resources (DCNR) to give a sweetheart deal to the industry, opening up huge swaths of our state forest to drilling.

And what a sweetheart deal it is. With natural gas prices at a record low, DCNR may well be forced to sell drilling leases in our state forest lands at rock bottom prices. And not just a few leases, either. Because the proposed budget relies on drilling in our state forests to bring in $65 million in just the first year, and $180 million next year, as many as 200,000 acres would have to be leased out, just for the drilling pads and immediate area.

What does that mean in real trees? Of the 2.1 million acres of state forest land, only 1.5 million are within the Marcellus Shale region. More than 660,000 of those acres are already available for drilling and 595,000 are environmentally sensitive areas that cannot be leased. That only leaves approximately 225,000 acres of state forest land that could be leased. So leasing 200,000 acres would mean very few trees would be left standing.

The actual amount of forest disturbed would actually be much greater. Building drilling pads means cutting roads through the forest – roads to be used by hundreds of trucks hauling the millions of gallons of water the special deep drilling and rock fracturing needs to reach the Marcellus Shale gas. And pipelines must be built across the forest to carry the gas to market.

So the state forest will soon look more like the state checkerboard, with a few trees separating the drilling operations.

But just turning our state into No-Sylvania isn’t the end of the mischief the budget negotiators have planned. Leasing the state forest to the gas industry will not bring in enough money to make up our budget shortfall. For that, the negotiators are turning to the folks with really deep pockets: bingo players and concert goers. The budget proposal calls for new taxes not on the multi-national gas companies, but on small games of chance – like the bingo games the local volunteer fire departments hold to raise money, and on theatre and concert tickets. In short, the folks without lobbyists.

This plan to destroy our forests and rob the poor to protect the rich multi-national gas industry can be stopped, by only with enough citizen outrage that the legislators turn this bad deal down. All in all, that would be better than having to come up with a new name for our state.

(PennFuture is a statewide public interest membership organization, founded in 1998.)

Session Daze…

More about the budget and gas drilling in PA.

http://my.pennfuture.org/site/MessageViewer?em_id=12641.0&dlv_id=14061

Foundation alleges rubber-stamping, challenges 2 gas-drilling permits

Here is an article from the Sun Gazette written by David Thompson. I find it very entertaining in a demented way that the comments Everett makes about miles and miles of state land that no one can get to, is the exact point and reason that some folks are against drilling in these areas! The other comment that caught my eye was the idea that we should allow these companies some time to get their foot in the PA door before we go taxing them. I’m no expert, but last time I checked the gas and oil industry was the only only one in this country that was making any money during this  period of  economic recession and I just can’t bring myself though any logical thought process to understand why we should give them a break on some taxes for a few years. Maybe Yaw and Everett are afraid these companies won’t be able to afford it and they’ll up and leave the state in search of another Marcellus Shale? Somehow, I highly doubt that they have any intentions of leaving before they have taken what they came for and the possibility of them not having the funding for it? Please, I’m not sure if I should laugh or cry over that one.

P.S. How come the Democrat has no timely response?

Foundation alleges rubber-stamping, challenges 2 gas-drilling permits

Environmental group PennFutures and Chesapeake Bay Foundation officials recently called for state lawmakers to abandon plans to lease state land to gas drilling companies and instead raise money for the state by implementing a severance tax on gas removed anywhere in the state.

At least two local lawmakers disagreed on both counts.

“I’m still unconvinced for the need for a severance tax,” said state Rep. Garth Everett, R-Muncy. “Maybe (it can be implemented) in a few years when the industry is up and running and producing something.”

Everett said he wants to see the industry gain a foothold in the state, then study the impacts the industry has on other types of taxes such as the corporate net income tax.

State Sen. Eugene Yaw, R-Loyalsock, agreed.

The industry should be allowed to develop before such a tax is implemented, Yaw said.

“I don’t think there is any question that down the road when the industry is established that there’ll be a tax,” he said. “I’ve talked to people in the industry. They expect it.”

Yaw said if there was the potential for any other job-producing industry to move to the state, they would be offered incentives such as tax breaks to come here.

“You can’t have an industry come in and then tax them to death,” he said. “Now is not the right time.”

“There’s not really a huge industry to tax,” Everett said. “Basically, today a severance tax would hurt the shallow well business in the western part of the state.”

Both Yaw and Everett said leasing state land for gas exploration should be done and can be done responsibly.

“I think it would be irresponsible if we didn’t lease some state land,” Everett said. “There is a humongous amount of state land in Pennsylvania that can be developed responsibly and I think it should be.”

“I think some people get confused between (the words) ‘state forest land’ and ‘state park,'” he said. “There is just miles and miles and miles of state forest land that nobody sees. You can’t get to it right now.”

“There’s no question there is a lot of activity and a lot of equipment and a lot of things that go on for a couple months,” Yaw said. “Once drilling is completed, those sites are reclaimed. The ones I’ve seen are grass.”

Yaw said he understands concern about land disturbance related to the building of pipeline infrastructure, but added that pipelines should be installed, when possible, along pre-existing rights-of-way such as roads and power lines.

The foundation recently filed a legal challenge to the issuance of erosion and sediment control permits by the state Department of Environmental Protection to gas-drilling companies in Tioga County.

Fortuna Energy Inc. was issued a permit to move earth related to the installation of a pipeline in Jackson Township. Ultra Resources Inc. received a permit for drilling operations in Gaines and Elk townships.

The foundation contends the state is jeopardizing the bay watershed by “rubber-stamping” permits without proper review.

Foundation attorney Matthew Royer said the DEP should restore review responsibility to the county Conservation Districts. The agency took over permit review responsibilities from the districts earlier this year.

“Conservation Districts have the local knowledge and experience to review permits and manage the program,” Royer said. “What we see here is a clear failure by DEP to meet fundamental review obligations. DEP should restore (review) authority to Conservation Districts.”

“I didn’t understand why the Conservation District folks were taken out of the loop,” Everett said. “The explanation (by the DEP) was that there was uneven enforcement from county to county, but I think Conservation District folks can be trained to put an extra pair of eyes and pair of boots on the ground.”

“I don’t have a problem with the Conservation Districts,” Yaw said. “My experience is they did a good job.”

Yaw added that both the DEP and Susquehanna River Basin Commission have “been very responsive” in streamlining their permitting process “without compromising the environment.”

State Rep. Rick Mirabito, D-Williamsport, did not respond to the Sun-Gazette’s request for comment as of deadline for this report.

PA Budget and Taxing the Oil and Gas Industries

Below is a letter from the PA State Forest Coalition. Has some good contact numbers and other info in it.

72 Days without a State Budget  – Help the Politicians Solve the Budget Impasse

Pennsylvania is poised to be the center of the Marcellus Gas industry.  Our location, close to pipelines and the big markets on the East Coast, is ideal because their biggest cost is transportation – getting the gas to markets.

The Gas Industry will make billions of dollars from drilling in the Marcellus. That’s a given.  Pennsylvania taxpayers should not be stuck paying for the damage they do to our roads, bridges and water supplies.

Natural gas is not subject to local taxation in Pennsylvania (PA Supreme Court 2/19/09), so the Townships & Counties suffering the damage will have a big problem footing the bill for repairs.

Pennsylvania State Representative Bud George has proposed a Natural Resource Severance Tax Act (House Bill 1489).  Of the 14 states with large natural gas fields, only California and Pennsylvania do not have a gas severance tax.  HB 1489 is a fair bill. It would ensure that tax dollars would be returned to the communities suffering the impact of the industry.

The Pennsylvania bill is nothing new – it is simply copying what West Virginia had recently enacted – but the Lobbyists are crying to our politicians “Don’t kill our infant industry with a tax on the gas we take”.                             Bullfeathers, folks.

The Oil & Gas industry can certainly afford the extraction fees.

The 200 largest O&G companies now operating in Pennsylvania all have between 108 and 5,374 wells.  A total of almost 98,000 wells.

See DEP’s listing at:

http://www.dep.state.pa.us/dep/deputate/minres/OILGAS/2008%20Operators%20w%20GT100%20Active%20Wells.htm

A recent Penn State publication titled “Marcellus Shale: What Local Government Officials Need to Know,” stated on page 15 that local municipalities will “very likely will face higher demands for services and thus higher costs, and yet receive little new revenues to pay for those services. The result could be higher local taxes  .  .  . ”

View the entire document at:

http://downloads.cas.psu.edu/naturalgas/pdf/MarcellusShaleWhatLocalGovernmentOfficialsneedtoknow.pdf

HB 1489 would ensure that the gas industry pays its own way for the impact it will make on the boroughs and townships in Pennsylvania because the municipalities would share part of the revenue.

When we remember the damage left behind by previous extraction of oil and coal in Pennsylvania  (taxpayers are still footing the bills for that damage), it is only fair that the industry pays their own way this time around.

We’ve been 72 days without a State Budget.   Go to www.legis.state.pa.us, enter your zip code in the upper-right corner and contact your State Senator and Representative.

Use a few of the talking points we covered to convince your legislators that we’ll be stuck for the bills associated with the Marcellus Gas extraction unless the Gas Companies pull their own weight for a change.

.   .   .   Do your good deed for the week for Pennsylvania

Dick Martin
Coordinator,  PaForestCoalition.org

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