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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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)

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

1967 Recklessness in PA Equals Destruction?

PHILADELPHIA INQUIRER
Marcellus rush echoes history of recklessness
Pa. has seen plenty of destructive energy extraction.

By Susan Q. Stranahan
The natural gas industry eyed the rugged forests of northern Pennsylvania, eager to exploit their enormous potential. Descending on Harrisburg, the industry’s promoters promised a much-needed economic shot in the arm. The year was 1967.

In hindsight, the plan seems impossibly audacious: Explode a 24-kiloton atomic bomb in the thick shale beneath the Sproul State Forest near State College to create a massive cavern for storing natural gas. Known as Project Ketch, it was a partnership between the Columbia Gas System Service Corp. and the U.S. Atomic Energy Commission, which was hungry to find peaceful purposes for nuclear technology. (Another commission brainchild of the era: to nuke its way across Panama to create a second canal.)

Back then, Harrisburg had the red carpet out for any nuclear project, no matter how bizarre, and the proposal caught on. Why not put all that empty forest land to good use? Pennsylvania could cash in big, because the industry and the AEC hoped to detonate as many as 1,000 nuclear bombs to allow gas storage in the Northeast.

While the plan had the blessing of lawmakers from downstream districts along the Susquehanna, the reception wasn’t as enthusiastic upstream. Among those opposed were the residents of Renovo, which was ground zero for Project Ketch. Wouldn’t the forest be harmed? And, by the way, wouldn’t the gas in the cavern be radioactive?

The project’s backers quickly responded that the gas would meet all existing regulations. True, except for one fact: There were no regulations. As news of the plan spread, more than 25,000 Pennsylvanians signed petitions opposing it. Ultimately, the AEC and Columbia backed away from the idea, and Sproul remained nuclear-free.

How different is today’s race to exploit the rich natural gas reserves buried deep in the Marcellus Shale formation stretching across Pennsylvania, including the Sproul State Forest? Not very.

Last week, the lure of a fast buck swept across Harrisburg once again. The latest bids for drilling rights on state forest land generated twice the revenue anticipated. The response in the Capitol: Let’s cash in! There are 1.4 million more acres of forest land out there that we haven’t leased yet. (That the state didn’t have the courage to demand a tax on this vast resource is another shameful story.)

Rep. Greg Vitali (D., Delaware) voiced the warning that should be reverberating around Harrisburg when it comes to handing Penn’s Woods to energy developers. “We need to go real slow at this and not look at the parks as a cash cow,” he said. That’s true of the whole gas leasing boom, on public and private land.

So far, the gas industry has called all the shots in states with Marcellus reserves. Pennsylvania is no exception.

In the absence of tough oversight in Harrisburg, concerned citizens have been left to ask: What will this do to water supplies? (Drinking water and streams have already been contaminated.) What chemicals are you using to extract the gas? (Until recently, the industry insisted this was a trade secret. Some are known carcinogens.) What happens to all the waste water generated? (The industry now concedes a lot of it will remain underground.)

In place of answers, the gas industry has given Pennsylvanians the same mumbo jumbo that the Renovo folks heard back in 1967: We meet all regulations. Trouble is, there aren’t enough regulations. Or regulators.

If developers are willing to pay top dollar to grab this natural resource, then it’s worth holding up the race for riches to make some wise choices – choices that won’t destroy Pennsylvania and haunt future generations.

Loggers swept across the northern tier of the state more than a century ago, leaving denuded mountains and polluted waterways. Only through decades of publicly funded reforestation and careful stewardship did the magnificent wooded headwaters of the Susquehanna, Delaware, and Allegheny river basins recover.

Pennsylvania gave away the store to the coal barons, too. They gouged hillsides, destroyed drinking water supplies, contaminated thousands of miles of streams, and left a cleanup tab in the billions of dollars.

Does anybody see a pattern here?

The short-term gains of these exploitative industries have become the long-term debts of Pennsylvania’s citizens. If wiser heads don’t prevail soon, the natural gas boom will leave a similar legacy – one regretted long after the resource, and those who profited from it, are gone.

Gas tax makes sense

http://www.philly.com/inquirer/opinion/20100118_Editorial__Gas_tax_makes_sense.html

Nice editorial from the Philadelphia Inquirer about taxing the energy companies for drilling int he Marcellus Shale in PA.

Next Years Severance Tax (better late than never?)

House to focus on drilling issues next year

by robert swift (harrisburg bureau chief)
Published: December 1, 2009

HARRISBURG – House Democratic leaders are making taxation and regulation of natural gas drilling in the Marcellus Shale formation top priorities next year.

The effort will get started with statewide hearings by the House Environmental Resources and Energy Committee and House Democratic Policy Committee, said Majority Leader Todd Eachus, D-116, Hazleton.

A renewed push to enact a state severance tax on gas production as well as legislation to address drilling-related issues ranging from protection of water supplies to royalties for landowners is part of the legislative focus.

“We are going to take up the issue of the Marcellus Shale extraction tax,” added Eachus in a recent interview. “We really think the development of the Marcellus Shale should have a social benefit.”

Interest in the impact of drilling activities in the Marcellus formation underlying Northeastern and Central Pennsylvania built steadily this year stemming both from fiscal concerns over the large state revenue deficit and environmental concerns highlighted by the recent federal lawsuit by 15 families in Susquehanna County alleging that Cabot Oil and Gas Corp. damaged their health and property.

Earlier this year, Gov. Ed Rendell proposed a five percent severance tax modeled on the West Virginia levy while the Department of Environmental Protection hired additional gas well inspectors with revenue from a fee hike on oil and gas exploration permits.

Rendell eventually said it would be premature to implement a severance tax for fiscal 2009-10, but House Democrats rallied behind the idea and included it in their version of the budget bill. The final $27.8 billion budget is without a severance tax. This is mainly due to because of opposition from Republican lawmakers who said a tax would discourage drilling companies from creating new jobs.

Rendell thinks the timing is right to include a severance tax as part of the 2010-11 budget, said John Hanger, acting Secretary of the Department of Environmental Protection.

“The governor is open to what the details of the severance tax would be,” he added.

One unresolved issue is the distribution of severance tax revenues.

“My (bill) would devote gas revenues to both the municipality and the county where natural gas is extracted, the Liquid Fuels Fund (for local road work), as well as to LIHEAP (low-income heating), environmental stewardship and state government,” said Rep. Camille George, D-74, Houtzdale, the environmental panel chairman.

Other drilling issues await Harrisburg’s attention.

George wants action to protect the existing 12.5 percent royalty to property owners for gas production on their land. He is awaiting a decision from the state Supreme Court on whether the royalty is to be calculated after deducting post-production expenses such as processing, marketing and transportion from the producer’s proceeds.