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Midterm Elections a Mixed Bag for Appalachian Basin's Oil, Gas Industry

Tuesday's midterm elections produced mixed results for the future of shale gas development in the Appalachian Basin, but the spotlight was overwhelmingly fixed on Democratic Governor-elect Tom Wolf's defeat of Republican incumbent Gov. Tom Corbett and its implications for the industry.

Wolf's victory came as no surprise in Pennsylvania, home to the nation's largest gas field in the Marcellus Shale. He defeated three candidates in May’s democratic primary with 58% of the vote and never looked back, holding a double-digit lead against Corbett in most polls through September (see Shale DailyOct 31; May 21).

Wolf, who bankrolled a multi-million dollar ad campaign, pushed shale gas extraction to the forefront of the campaign. He promised what polls have shown to be a popular 5% severance tax on production in a state without one. Corbett resisted those calls and instead relied heavily on the balanced budgets and spending cuts he helped achieve during his four years in office.

It didn't pay off, though, and Corbett conceded the governor's office shortly after 10 p.m. EST Tuesday, with unofficial results showing that Wolf had defeated him by a margin of 55-45%.

"This is a place that deserves to have a great future. We need to expect a lot of ourselves," Wolf was quoted by local news media as telling supporters at a rally in his home county of York after the victory. "If we do, we can do great things here. So here's my message: let's make this the time. Let's make this the place, Pennsylvania. Let's be the people to create this bright future we deserve."

During his speech, Wolf also said he wanted to take advantage of the state's natural resources.

He took both Allegheny and Philadelphia counties by a wide margin, home to the state's major population centers of Pittsburgh and Philadelphia. In 2010, when Corbett rode a national wave of Republican support to victory, he won his home county of Allegheny by more than 400 votes.

Both CBS News and the Associated Press had called the election within a half-hour of polls closing.

"I think we feel that the impact fee is doing exactly what it needs to do and bringing back a large amount of money to where the impacts are felt in communities across the state," said Jackie Root, president of the Pennsylvania Chapter of the National Association of Royalty Owners. "We're also pleased that Act 13 is written in a way that those funds don't come from royalty owners -- the costs are borne by the companies drilling the wells. The problem with a severance tax is we'll likely have to pay whatever that is going to be."

Wolf released few details about his plan for a severance tax on the campaign trail. A major question for the industry and some townships across the state is whether the impact fee will be replaced by a severance tax if passed, or if such a tax would compliment it. The impact  fee charges a flat fee for all wells drilled in the state for distribution to local governments and state agencies (see Shale DailyFeb. 15, 2012). Wolf has said roughly $1 billion could be raised annually from a severance tax that could go toward the state budget deficit and cuts to education spending.

"It's not equitable the way it's being laid out," Root said. "We realize more revenue is needed at the state level and it certainly would help, but if it's coming from one part of the economy you're penalizing some and not others."

While Corbett was defeated, however, the state Senate bolstered its Republican majority with unofficial results showing newcomers Camera Bartolotta and Pat Stefano defeating Democratic incumbents Tim Solobay and Deberah Kula to take seats representing western Pennsylvania. Meanwhile, the controversial Four-term state Democratic Rep. Jesse White, who often railed against the oil and gas industry, was defeated by Republican newcomer Jason Ortitay for a seat representing Allegheny and Washington counties.

While experts say there could be room to pass a severance tax in the state Senate, such a bill is expected to face staunch resistance in the state House of Representatives, where Republican leadership has strongly opposed previous proposals (see Shale DailyJuly 1Jan. 28).

"We don't know what kind of relationship Governor-elect Wolf is going to have with the legislature," said Pennsylvania State University law professor Ross Pifer, who also focuses on shale gas policy in the state. "One of the four things he mentioned last night was energy, so we can assume it's on that short-list of priorities and issues he's going to try and address through some policy changes. Some of that is still unclear, and we'll have to see how he can work with a Republican majority."

In Ohio, Republican Gov. John Kasich cruised to victory, with news media in that state calling the election within minutes of the polls closing. With 97% of precincts reporting on Wednesday, results showed Kasich defeated Democratic challenger Ed Fitzgerald handily by a margin of 64-33%

Paul Sracic, chairman of the political science department at Youngstown State University, said Fitzgerald stood little chance of winning the election all along.

"He was a bad candidate," Sracic said. "He also had no statewide name identification."

The challenge for Kasich now, whom Sracic said is expected to focus on economic issues, will be working with a conservative legislature that strengthened its majority on Tuesday.

"The problem for Kasich is he created this sort of Republican super wave in Ohio, where in this election weak Republicans were carried by him who are probably more conservative than he is," Sracic said. "If he has presidential aspirations, which everyone seems to think he does, the challenge for him will be about controlling a conservative legislature. Republicans had good majorities before, but they built on that last night."

Kasich supports a 2.75% shale tax on oil and gas production in the Utica Shale. In May, the state House of Representatives passed a bill that would implement a 2.5% rate (see Shale DailyMay 15). Kasich has said he wants more to help lower the state's personal income tax rate.

Three of four charter amendments to ban horizontal hydraulic fracturing (fracking) in Ohio also failed by wide margins on Tuesday. While Gates Mills and Kent voted against a ban, and voters in Youngstown defeated one by the widest margin yet for the fourth time in a little more than a year  (see Shale DailyMay 7), voters in the college town of Athens, home to Ohio University, passed a ban with 78% of the vote.

"Ohio communities are challenging the corporate claimed right to frack, as well as the claims of our state government that communities have no right to protect their own health, safety and welfare, said Tish O'Dell, Ohio community rights organizer for the Community Environmental Legal Defense Fund, which crafted many of the proposed amendments in the state. "They are joining dozens of other communities across the country who are securing their inalienable right to local self-governance and to a sustainable future."

But Ohio Oil and Gas Association (OOGA) spokesman Mike Chadsey said Athens is outside of the Utica Shale's core area of development and added that the town's ban "doesn't affect anything." He noted too that both Ohio Supreme Court Justices Judith French and Sharon Kennedy were reelected to their seats on Tuesday, setting the stage for a decision before the end of the year about a landmark case that could uphold Ohio's ability to regulate the industry and permit wells without local interference (see Shale DailyDec. 30, 2013)

"The big thing about this is a blue collar town, a bedroom community and now a college town, all very different places, have said we're not buying into these scare tactics of the anti-development issue," Chadsey said of the towns that rejected bans. "Local coalitions defeated these; mayors and business people said this is bad for business and bad for our town. For the fourth year in a row, OOGA didn't do any speeches or write any checks, we just watched them. This is all about locals saying these are bad for our community."

Republicans fared better in West Virginia as well, where U.S. Congresswoman Shelley Moore Capito comfortably defeated West Virginia's Democratic Secretary of State Natalie Tennant to help Republicans wrest control of the U.S. Senate. There was no governor's race in that state, though, as Democrat Earl Ray Tomblin took office in 2012 after a special election to replace Joe Manchin, who won a U.S. Senate seat in 2010. 

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