PA DEP Fines Pennsylvania General Energy Co. LLC $28,960 for Illegal Surfactant Discharge

COMMONWEALTH OF PENNSYLVANIA

Dept. of Environmental Protection

Commonwealth News Bureau

Room 308, Main Capitol Building

Harrisburg PA., 17120

FOR IMMEDIATE RELEASE

02/2/2011

CONTACT:

Daniel T. Spadoni, Department of Environmental Protection North-central Regional Office

570-327-3659

DEP Fines Pennsylvania General Energy Co. LLC $28,960 for Illegal Surfactant Discharge to Pine Creek in Lycoming County

Incident Occurred at a Marcellus Natural Gas Well Pad in Cummings Township

WILLIAMSPORT — The Department of Environmental Protection today announced that it has fined Pennsylvania General Energy Co. LLC (PGE) of Warren $28,960 for the illegal discharge of Airfoam HD, a surfactant, into Pine Creek in Lycoming County last March.

Surfactants are used by natural gas drillers to create a foam that will lift water and drill cuttings to the surface. Airfoam HD is approved by DEP for use by the industry.

“PGE responded immediately to this incident and fully cooperated with the department,” said DEP North-central Regional Director Nels Taber.

During the weekend of March 13 and 14, 2010, there was significant rainfall and snow melt that caused residual Airfoam in a Marcellus well bore to migrate to a spring on the hillside creating a white, foamy substance. The spring was not used as a source of drinking water.

A DEP investigation on March 15 verified that the material was flowing from the spring, down the hillside, under Pa. Route 44 via a storm drain, and into Pine Creek. At the time, the spring was flowing at an estimated 180 gallons per minute.

PGE began diverting foam from the storm drain in the road berm and later placed an absorbent boom across the spring run on the hillside, which prevented further discharges to Pine Creek.

No constituents of Airfoam HD were detected in Pine Creek.

The discharge was a violation of the Clean Streams Law, Solid Waste Management Act, and DEP’s oil and gas regulations.

The fine was deposited into the fund that supports DEP’s oil and gas permitting and enforcement programs.

For more information, call 570-327-3659 or visit http://www.depweb.state.pa.us.

Backlash to Natural Gas

The pictures did not carry through with this article but you get the idea by reading it. Our water supplies are at risk and hydraulic fracturing is too new a technology to really be sure what may or may not happen. (This is not news to many of us living in shale country) There is a lot of info and history laid out in this article and it is worth the time it takes to read it. Exxon (who now owns XTO Energy) has been lobbying in Washington this week because they do not want Congress changing the drilling regulations in regards to the Safe Drinking Water Act.

DRILLING TACTIC UNLEASHES  a TROVE of NATURAL GAS – AND a BACKLASH // WSJ 1/21/10

SHREVEPORT, La.—A mounting backlash against a technique used in natural-gas drilling is threatening to slow development of the huge gas fields that some hope will reduce U.S. dependence on foreign oil and polluting coal.
The U.S. energy industry says there is enough untapped domestic natural gas to last a century—but getting to that gas requires injecting millions of gallons of water into the ground to crack open the dense rocks holding the deposits. The process, known as hydraulic fracturing, has turned gas deposits in shale formations into an energy bonanza.

The industry’s success has triggered increasing debate over whether the drilling process could pollute freshwater supplies. Federal and state authorities are considering action that could regulate hydraulic fracturing, potentially making drilling less profitable and giving companies less reason to tap into this ample supply of natural gas.
Exxon Mobil Corp. placed itself squarely in the middle of the wrangling when it agreed last month to pay $29 billion for gas producer XTO Energy Inc., a fracturing pioneer. Wary of the rising outcry, Exxon negotiated the right to back out of its deal if Congress passes a law to make hydraulic fracturing illegal or “commercially impracticable.”
On Wednesday, Exxon Chairman and Chief Executive Rex Tillerson faced questions about the environmental impact of hydraulic fracturing at a Capitol Hill hearing on the merger.
“We can now find and produce unconventional natural-gas supplies miles below the surface in a safe, efficient and environmentally responsible manner,” Mr. Tillerson told members of the House Energy and Commerce Committee.
Criticism of hydraulic fracturing was muted at the hearing, with most representatives focusing on the potential benefits of increased gas use. But the merger has given drilling opponents a new target.
“It puts Exxon at front and center of this whole issue,” said Michael Passoff, associate director of As You Sow, an environmental-minded investment group.
Even before the Exxon-XTO deal, the controversy over hydraulic fracturing, also known as “fracking” or “fracing,” was growing.
Oilmen were injecting water into wells to free up valuable oil and gas as far back as the 1940s. But in the past decade the technique has really taken off. First in East Texas and in the outskirts of Fort Worth, companies began pumping water under enormous pressure to see if they could break open dense shale-rock formations to release gas.

These initial efforts were largely welcomed by communities, with homeowners and landlords often receiving lucrative checks for the mineral rights that allowed companies to drill on their land.
When early efforts succeeded, the companies began running bigger fracturing jobs, using more water and higher pressure—and in turn searching for even more gas-bearing shale deposits.
This took the gas industry into places where drilling was less common in modern times, including downtown Fort Worth, northeastern Pennsylvania and within the city limits of Shreveport, La.
Hydraulic fracturing and some other technology improvements have created a way to tap a domestic fuel source that has proved abundant. U.S. natural-gas production has risen about 20% since 2005 in large part because of these developments, making gas a much bigger player in energy-policy planning.
Natural gas heats more than half of U.S. homes and generates a fifth of America’s electricity, far less than coal, which provides the U.S. with nearly half its power. The industry and its allies are promoting natural gas a bridge fuel to help wean the U.S. off coal, which emits more global-warming gases, and imported oil until renewable fuels are able to meet the demand.
What most worries environmentalists isn’t the water in the fracturing process—it’s the chemicals mixed in the water to reduce friction, kill bacteria and prevent mineral buildup. The chemicals make up less than 1% of the overall solution, but some are hazardous in low concentrations.
Today, the industry estimates that 90% of all new gas wells are fractured. Shale—a dense, nonporous gas-bearing rock—won’t release its gas unless it is cracked open, and other types of formations also produce more gas when fractured. Easier, more porous formations, which don’t require fracturing, were tapped in earlier decades and have largely dried up.
As the industry has honed its techniques, hydraulic-fracturing operations have become more complex, requiring far more water and chemicals—millions of gallons per well, rather than tens or hundreds of thousands of gallons in the past.
Environmentalists and some community activists fear hydraulic fracturing could contaminate drinking-water supplies. They point to recent incidents that they say are linked to fracturing, including a water-well explosion in Dimock, Pa., and a chemical spill here in Shreveport.
The industry says fracturing is safe and argues that there have been only a handful of incidents among the millions of wells that have been fractured over the past 50 years. “Hydraulic fracturing has been used since the 1940s in more than one million wells in the United States. It’s safe and effective,” says Exxon spokeswoman Cynthia Bergman.
Even if the industry can make its case, it still must deal with the public-relations and political fallout from some of the questionable incidents.
On a recent Friday morning, a crew from Cudd Energy Services worked to fracture a Chesapeake Energy Corp. well in Caddo Parish, La., the heart of the Haynesville Shale gas field. While cattle chewed grass in a field across the street, a team of Chesapeake and Cudd employees monitored computer readouts as 21 diesel-powered pumps forced nearly 3,800 gallons of water a minute down a well that reached two miles into the earth.
It is a process Chesapeake says it has learned how to do both efficiently and safely. “We’ve done it 10,000 times in the company’s history without incident,” said Aubrey McClendon, Chesapeake’s chairman and chief executive officer, in a separate interview.
But in a coffee shop in nearby Shreveport, Caddo Parish Commissioner Matthew Linn said he had concerns after more than a dozen cows died during a Chesapeake Energy fracturing operation last year. A preliminary investigation linked the deaths to chemicals that spilled off the well site into a nearby pasture. A Chesapeake spokesman says the company compensated the cattle’s owner and has taken steps to prevent a similar incident in the future.
“I’m all for drilling, and I want to get the gas out from underneath us,” Mr. Linn said. “But at the same time, how do you balance human life and quality of life and clean water against that?”
Natural-gas companies say what’s at work is fear of the new. “When you introduce something like hydraulic fracturing in a part of the country that hasn’t had any experience with it, I think it’s natural for there to be questions about the procedure,” says Mr. McClendon.
Regardless, the industry faces a real prospect of tightened rules that could make it harder, or impractical, to use hydraulic fracturing. In June, congressional Democrats introduced legislation that would regulate fracturing at the federal level for the first time. The bills remain in committee. In October, the house formally asked the Environmental Protection Agency to study the risks posed by fracturing.
Several states, including Colorado, Pennsylvania and New York, have either passed or are considering tightening regulations on fracturing and related activities. Members of the House of Representatives pushing for new legislation argue that federal oversight is needed to protect water supplies because state regulations vary widely.
The industry worries that new regulations would hurt the thin margins on many gas wells and cut the financial incentive to tap the U.S.’s vast supply of gas. “There is an anticipation that more federal oversight would add enough costs to make it uneconomical, even it wasn’t outright prohibited,” said Gary Adams, vice chairman of Deloitte LLP’s oil and gas consulting division.
Already, the growing concerns about the practice are causing some companies to rethink where they drill. Chesapeake last fall publicly abandoned plans to drill in the watershed that provides New York City with its drinking water after opposition from city officials and others who feared a spill could contaminate the water. Talisman Energy Inc. is shifting its drilling effort away from New York as well.
There have been attempts to regulate fracturing before. The 1974 Safe Water Drinking Act regulated wells that injected liquids underground. The federal courts ruled the law covered fracturing in a 1990s lawsuit from Alabama. But the technique was exempted from federal oversight in the 2005 Energy Bill.
Some argue there is little really known about whether fracturing poses a genuine risk to water supplies. Hannah Wiseman, a visiting law professor at the University of Texas, Austin, says tighter regulation may be warranted. “There just isn’t enough information out there right now about the effects,” she said.
Some of the potential threats are clearer than others, however. Gas-bearing shale formations typically lie a mile or more below the surface, with thousands of feet of nonporous rock separating them from even the deepest freshwater aquifers.
Most people agree that means that if a fracturing job is done correctly, it would be virtually impossible for water or chemicals to seep upward into drinking water supplies.
The industry argues that there has never been a proven case of water contamination caused by fracturing. But regulators have tied multiple incidents to oil and gas drilling more generally. Environmental groups point out that wells aren’t always constructed properly. Moreover, they say, storage ponds that hold chemical-laced water after fracturing is complete can overflow, and trucks carrying chemicals can crash.
A poorly sealed well is the alleged cause of gas escaping into an underground aquifer in Dimock, Pa. Gas also built up in one resident’s water well, causing an explosion in January 2009.
The company that drilled the wells, Cabot Oil & Gas, paid a $120,000 fine to settle the matter with the state, but has denied responsibility for the contamination and says fracturing couldn’t have been the cause.
“I could never sell this house now,” said Dimock resident Craig Sautner, who now has drinking water shipped to him by Cabot. “Our pristine water that we used to have? It’s done.”
Whether it is the act of fracturing itself or the risk of contamination from related activities is somewhat beside the point, says Amy Mall, a senior policy analyst for the Natural Resources Defense Council, an environmental group that has raised concerns about fracturing. “Ultimately it’s semantics. Somebody’s water got contaminated,” she says.
Still, for Exxon, the hearings this week presented an opportunity to highlight its investment in developing U.S. energy supplies and creating jobs. Most of its investments in recent years have been overseas. And Exxon executives usually face congressional grilling only when oil and gasoline prices skyrocket.
“This should probably be a very pleasant change of pace for Exxon Mobil because it’s not going to be an argument about high oil and gasoline prices,” says William Hederman, an energy analyst with Washington research firm Concept Capital.

—Siobhan Hughes contributed to this article.

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.