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Pennsylvania's Marcellus Shale Debate Heating Up

March 30, 2009
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Republican members of the Pennsylvania House of Representatives last Tuesday unveiled a plan to further tap into prolific Marcellus Shale deposits by expanding natural gas drilling to 390,000 acres of state forest land over the next three years -- a proposal one conservation group quickly labeled "irresponsible."

The House Republican Energy Task Force, co-chaired by Reps. Dave Reed (R-Indiana) and Tina Pickett (R-Bradford/Sullivan/Susquehanna), said its proposal would bring state and local governments and conservation districts an additional $260 million annually and help create 7,000 new jobs.

The "Energize PA" plan would lease 130,000 acres of state forest land to natural gas drilling companies in the upcoming year. Another 130,000 acres would be made available in each of the next two years. The legislation would establish a minimum bid payment of $2,000/acre. Of the total revenue raised, 80% -- approximately $208 million annually -- would go toward relieving the state's projected $2.3 billion budget deficit. Local governments that host existing natural gas, oil or coal shallow well drilling sites would share 12.5% ($32.5 million) of the money. Local governments that host new Marcellus Shale drilling operations would share 2.5% ($6.5 million) and conservation districts across the state would share the remaining 5% ($13 million).

According to Reed, Gov. Ed Rendell's recent proposal to raise $107 million annually through a severance tax on drilling operations would make it less attractive for drilling companies to expand their operations in Pennsylvania. "We have an industry that wants to grow here and create more jobs and the governor responded by putting up a roadblock," Reed said.

Rendell's proposal would institute a gas severance tax identical to the one currently in place in West Virginia -- 5% on the value of the gas at the wellhead, plus 4.7 cents per thousand cubic feet. The Marcellus Shale Committee, which represents the oil and gas industry in the state, has said the severance tax outlined by Rendell would make development in Pennsylvania less appealing than in other large gas-rich states (see NGI, Feb. 9).

Jan Jarrett, CEO of Citizens for Pennsylvania's Future, said the Republican plan would give the industry "a free pass to drill anywhere" without paying a severance tax as required in most other states.

"This plan to open up hundreds of thousands of acres of state forest, whether or not it harms our natural resources, is the height of fiscal and environmental irresponsibility...we are not opposed to drilling, but the word 'responsible' has to be firmly in the definition," Jarrett said.

Earlier this month a group of Democratic legislators and a coalition of environmental, conservation and sporting groups -- including Citizens for Pennsylvania's Future -- said a severance tax should be levied on natural gas drilling in the state (see NGI, March 23). The coalition pointed to the results of a recent survey, which it said confirmed that Pennsylvania voters support using state revenues from gas drilling to support land, water and wildlife conservation. The survey found that a majority of voters support charging a tax on energy companies based on the amount of gas they drill in Pennsylvania, and more than three-quarters of those surveyed would support setting aside up to 25% of the money generated to fund conservation programs, the coalition said.

While the coalition proposal would cover extraction of gas anywhere in the state, the impact would likely be felt most strongly by producers in the Marcellus. Trillions of cubic feet of gas -- some estimate as much as 500 Tcf -- lay thousands of feet underground in the Marcellus, which stretches from West Virginia to New York.

Pennsylvania House Majority Whip Bill DeWeese (D-Greene County) has introduced legislation that would allow counties to assess value to gas, oil and coalbed methane resources before they are produced and tax the producers (see NGI, March 16). DeWeese said the tax would be assessed against the developer or driller, not the landowner or farmer on whose property the wells are located. DeWeese said nearly every state taxes natural resources; therefore, allowing such an assessment at the county level would not drive the drilling companies to neighboring states.

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