Cheaper by the billion

Via Penn Futures – Friday, March 04, 2011

Range Resources is selling the 52,000-acres it owns in the Barnett Shale natural gas play in Texas for a cool $900 million.

Is Range bailing out of one of the most productive shale plays in America?

Are they going bankrupt?

Um, no.

According to one industry analyst, Range intends to plow the proceeds of that sale into developing its Marcellus shale holdings in Pennsylvania.

Why? Because production in Pennsylvania is “cheap.”

And production is not the only thing that is cheap.

Transportation of gas to market is the largest component of a gas driller’s cost. Pennsylvania’s Marcellus gas lies in the middle of the strongest natural gas market in the world – the Eastern United States.

So, transportation costs in Pennsylvania are also cheap.

According to this analyst, Range will spend over a billion dollars this year developing its Marcellus production capacity. Despite giving up its Texas holdings, Range expects production to grow 10 percent this year, and 25 to 30 percent next year. It also expects that costs will remain low this year and next year, meaning “solid” (an industry term for huge) profit margins will continue.

“Range offers shareholders a future full of cheap production growth. The company is going to generate significant cash flow, which is great news for shareholders,” wrote the analyst.

But it gets even better for Range.

According to another report, Range has the potential for a “triple play” – to produce natural gas and natural gas liquids not only from the Marcellus Shale but also from the Upper Devonian Shale above the Marcellus and the Utica Shale below the Marcellus.

Range Resources CEO John Pinkerton sums it up well. “…our shareholders are going to make a whole bunch of dough…”

But none of this is great news for ordinary Pennsylvanians facing drastic reductions in government services, for communities in the Marcellus region that are struggling to deal with the impacts of gas development, or for Pennsylvania’s environment. Because Range, like all the other gas drillers in Pennsylvania’s Marcellus development boom – who have similarly cheap production – pays no drilling tax.

That’s what’s really cheap.

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Failing to Pass a Severance Tax…

Below some comments from the press and PennFuture about the state of the State’s budget sans a tax on drilling.

Inaction on drill tax has a bad odor to it
Sunday, October 24, 2010
By Brian O’Neill, Pittsburgh Post-Gazette

…. Its [PA’s Legislature] latest gaffe is passing on collecting tens of millions of dollars in revenue from the oil and gas industry, which is making huge money in our state (and passing a good bit of it around Harrisburg). Nearly all of the nation’s natural gas comes out of the ground in states that have severance taxes, but we won’t have any….

Bill Holland is associate editor of Gas Daily, which covers the natural gas market in North America. He said, “Industry analysts have never been very concerned” about paying a tax in Pennsylvania. Even the House bill passed largely by Democrats last month wasn’t that big a deal, Mr. Holland said. “They expect a tax eventually — like there is everywhere else drilling occurs,” he said.

It’s not as if profit margins are low. Mr. Holland pointed to Chesapeake Energy’s recent statement that its break-even selling price for drilling Marcellus Shale gas is $2.45 per thousand cubic feet, and Friday’s closing price for gas futures was $3.35. Now drillers don’t have to worry about even a pin scratch on that pretty price spread….

To read the full opinion online, click here:

http://www.post-gazette.com/pg/10297/1097325-155.stm

PennFuture’s Drilling Fact of the Day

October 22, 2010
The refusal of the Pennsylvania Senate leadership to consider a severance tax bill leaves Pennsylvania citizens in the lurch, with a $70 million hole in this year’s state budget, and with local communities holding the bag on covering the public safety and social costs that drillers bring with them….

To read the full PennFuture Drilling Fact of the Day, click here:

 

Keep the Promise Town Hall-PA Severance Tax!

September 9, Thursday— Keep the Promise Town Hall in Jersey Shore, Lycoming County between Williamsport and Lock Haven, 7:00-9:00 p.m.
Robert H. Wheeland Center, 1201 Locust Street, Jersey Shore, PA 17740 (part of Citizens Hose Company, Station 45)
Date: August 30, 2010 12:56:46 PM EDT
Subject: PennFuture event in Jersey Shore 09/09
I wanted to reach out to you as individuals and leaders of your organizations to invite you to an upcoming town hall meeting in Jersey Shore. We appreciate the help and support you have provided on many issues around clean water and responsible drilling in the past.
As you are probably aware, funding for the Growing Greener program is expiring. To make matters worse, the Environmental Stewardship Fund, which also funds  Growing Greener, has been diverted away from local projects.  There are many projects in north central PA and around the Commonwealth that were made possible due to this funding source. Some of you may have played a key role in these projects.
PennFuture is hosting a town hall on the severance tax and uses of the revenue on Thursday evening, September 9, in Jersey Shore.  We are calling our series of these events around the state the “Keep the Promise Tour” as we are asking members of the PA General Assembly to keep the promise they made in July to have a severance tax agreement by October 1. Below are the details on the event. We expect the following folks to attend among others: Reps. Mike Hanna, Garth Everett and Rick Mirabito; Commissioner Joel Long from Clinton County; Dave Rothrock from PA Council of TU; Tim Schaeffer from the Fish and Boat Commission; and several folks discussing value of Growing Greener funding for the area.
We would welcome attendance by your members and any promotion of the event that you can provide.  We ask that folks who attend the event register through our web site at the link below.
September 9, Thursday— Keep the Promise Town Hall in Jersey Shore, Lycoming County between Williamsport and Lock Haven, 7:00-9:00 p.m.
Robert H. Wheeland Center, 1201 Locust Street, Jersey Shore, PA 17740 (part of Citizens Hose Company, Station 45)

A Letter to the Editor…

The following letter to the editor in today’s Williamsport Sun-Gazette has some interesting ideas. Whether or not you agree with any or all of these, it surely will get you considering ways to think out of the box in addressing gas drilling issues.

A Gas Drilling Protection Plan-Posted April 29th-letter to the editor

I was surprised how fast the gas drilling industry charged into Pennsylvania and I suspect once our natural gas wealth is taken, the profiteers will be equally fast in leaving. We will be left with a destroyed landscape, massive pollution, and for decades with the clean-up costs. Pennsylvania’s gas wealth belongs to the people, not the grab and go profiteers. We can not stop it, but we can control it, and share it. We must demand our elected officials return all contributions from the drillers or give it to a charity and that they notify the public of every lobbying contact. If they don’t and do not pass the following legislation, let’s vote them out of office.

We need an immediate moratorium on drilling until the following can be enacted:

1. An annual $5,000 per well drilling fee.

2. Five cents per gallon for the water drained from our creeks and rivers.

This money would be used to hire hundreds of inspectors and auditors to monitor drilling activity independent of but as a complement to our under-staffed DEP….

To read the full letter, click here:

http://www.sungazette.com/page/content.detail/id/542635.html?nav=5008

Tax Day Fairness

Here is a piece about the gas industry and taxes that comes from Penn Futures.

Tomorrow brings the annual income tax deadline, and the media will
predictably cover those who complain the loudest about having to pay
taxes. But all the sound and fury misses the point – most citizens
regard paying taxes as their civic duty, but are disturbed by the lack
of fairness in the system.

In Pennsylvania, the folks complaining the most about paying taxes are
the Marcellus Shale gas drillers and their friends. These multi-
national corporations, which include CONSOL Energy and ExxonMobil, are
crying poor, claiming that charging them an extraction fee on the
liquid gold they are taking from our land would destroy an “infant”
industry.

Of course, the fee is one these same corporations happily pay in other
states. Out of the top 15 natural gas producing states, Pennsylvania
is the only one that doesn’t have a fee to compensate for the loss of
our natural resources and help fix the scars of extraction. An impact
fee (also called a severance tax) identical to the one in place in
West Virginia since 1987 would raise more than $100 million a year
initially, rising to more than $630 million annually

Pennsylvania is ideally situated close to large markets, and since the
cost to transport natural gas constitutes at least 40 percent of the
price consumers pay, Pennsylvania gas is among the most profitable in
the country for the drillers. Even with an impact fee, Pennsylvania
gas will still be a bonanza for the gas drillers.

Nevertheless, the drillers and the Pennsylvania Chamber of (some)
Business and Industry still cry. “We already pay way too much tax. We
have to pay this state’s awful corporate net income tax and adding a
new tax will kill our ability to create jobs.”

But not so fast. The multi-national energy companies rushing to drill
here aren’t dumb, and they can legally avoid the corporate net income
tax by simply choosing a particular corporate structure – a limited
liability corporation – or incorporating in the state of Delaware, a
tax avoidance move known as the Delaware loophole. In fact, 71 percent
of companies doing business in Pennsylvania paid zero corporate net
income tax – nada – last year. And 79 percent of the remaining
companies paid less than $10,000 each. So our current corporate tax
scheme in no way can be described as “job crushing,” as these multi-
national behemoths allege.

Without an extraction tax, the drillers get to take all the profits,
but local communities and our environment are left holding the bag.
Natural gas extraction imposes heavy costs on our communities and
environment – pipelines, drilling pads and wastewater storage pits
altering our landscapes and fragmenting wildlife habitat, heavy rigs
damaging our roads, billions of gallons of water taken from our
streams and operational errors contaminating our land and drinking
water.

Some of the money raised from a natural gas extraction tax could be
used to offset these costs, going back to the communities that “host”
the drilling operations. It could also be invested in watershed
restoration and protection, habitat conservation, public access to
outdoor recreation, and conservation of open space and farmland. This
can be accomplished by directing a portion of the tax to the
Environmental Stewardship Fund (Growing Greener) as well as the
Pennsylvania Game Commission and Fish and Boat Commission for habitat
improvement and public access purposes.

Passing an extraction tax to help pay Pennsylvanians for the use of
our resources and to pay for the damage left behind by the drillers
would go a long way to making our tax system fairer, which is what
most taxpayers want more than anything – especially on April 15.

http://www.pennfuture.org/UserFiles/PDFs/vol12no08_041410.pdf

Gas and Taxes

Pennsylvania and New York are the only two oil and gas producing states which don’t levy a severance
tax. In Texas (the Barnett Shale) they don’t have a state income tax thanks to their severance tax and in
Alaska not only do they not have a state income tax but every resident gets an annual check.
Pennsylvanians may not be able to secure the same benefits as Texas or Alaska but why wouldn’t we
want to get something out of this?
Having a Severance tax in place is of the utmost importance. Without one we are left to deal with these
questions. Should the highly profitable gas industry or Pennsylvania’s tax payers foot the bill for proper
monitoring and inspections? What about the damage to our roads, contaminated well water and
pollution to our beautiful streams and forests? Who should reap the most benefit from Pennsylvania’s
natural gas – outside speculators or its citizens? Is there a reasonable alternative to a severance tax for
achieving any of this? The gas industry pays as little as it can for our gas, shouldn’t we be
taxing their profits at the highest rate we can? Isn’t the Marcellus Shale, and more importantly the land
and people above it, worth just as much as the Barnett Shale?

Most of us are aware that Pennsylvania has not enacted a Severance tax yet. If your not familiar with this issue or have not looked into it for a while then this should help get you updated on it
The Pennsylvania Legislature is debating whether the state should levy a severance tax on the extraction of natural gas to help reimburse state and local governments for environmental, infrastructure, and societal costs imposed by the industry. Until recently, Pennsylvania has had a modest natural gas extraction industry…. One of the central claims of critics regarding the proposed tax is that it is unneeded as drillers here “face the highest corporate tax rate in the nation.” A closer look at the evidence shows that this is not the case for most companies. In fact, the drillers of more than 70% of the wells in the Marcellus Shale will pay the state’s 3.07% Personal Income Tax (PIT) rather than the 9.99% Corporate Net Income Tax (CNIT).i The following table lists all companies with permits to operate wells in the Marcellus Shale and highlights the firms that are paying the lower PIT rate. ….
To read the rest of this report and view the table, click here:

http://pennbpc.org/sites/pennbpc.org/files/Over 70 Percent of Marcellus Shale Wells Pay PIT.pdf