Pennsylvania legislators continue to wrestle over details of a $28 billion state budget, and a severance tax on natural gas drilling, possibly to be passed as a separate measure later this year, remains on the table. At the same time, the state's regulators are pressuring drillers in the Marcellus Shale to improve the safety and environmental impact of their operations.

With a deadline looming -- state law requires lawmakers to have a budget in place by midnight Wednesday -- budget negotiations were reported into the early morning hours Tuesday and were still underway late Tuesday afternoon.

"I think we're just about there, and I think what's going to happen to the severance tax is that it will not be included in the budget that we do in the next day or so, but there will be an agreement to enact a severance tax by Oct. 1 to take effect by Jan. 1," Gary Tuma, spokesman for Gov. Ed Rendell, told NGI. "There will not be in the next day or two an agreement on a specific rate, but there will be an understanding that there will be a rate and a structure that will produce a certain amount of revenue for next year and for a number of years into the future."

Last year the Pennsylvania House debated legislation that would have imposed a "privilege tax" on all of the state's natural gas producers at a rate of 5% of the gross value at the wellhead, plus 4.7 cents/Mcf, but the final budget did not include the tax (see Daily GPI, Oct. 12, 2009; June 24, 2009).

Language forcing property owners to allow drilling should be part of any bill allowing a severance tax, Chesapeake Energy regional vice president for government relations David Spigelmyer told the state's Times-Shamrock newspapers Monday. Such a "forced pooling" element could garner the support of the state's gas drillers, Spigelmyer told the newspapers.

Forced pooling and other possible provisions remain to be finalized, according to Tuma.

"Those are the kind of questions that will be discussed between now and Oct. 1," he said. "That and other questions are part of the reason that they're not doing it now. They're going to have kind of a budgetary understanding of what they want to do, but when you get into all of the nitty-gritty details -- the structure and all of the various provisions -- those are the kind of things that are going to be worked out over the summer and the early fall."

In addition to the severance tax, at least one House member from each political party is seeking a one-year moratorium on new gas drilling and tighter restrictions on horizontal drilling and hydraulic fracturing (see Daily GPI, June 23). One House measure would Congress to pass the Fracturing Responsibility and Awareness of Chemicals (FRAC) Act. The act would repeal a provision in the federal Safe Drinking Water Act that exempts oil and gas drilling industries from restrictions on hydraulic fracturing operations located near drinking water sources, a provision known as the "Halliburton Loophole."

The year-old FRAC Act would also require oil and gas industries to disclose all hydraulic fracturing chemicals and chemical constituents currently considered proprietary rights of the company (see Daily GPI, June 10, 2009).

Last month the Pennsylvania House Environmental Resources and Energy Committee approved a bill that would bolster the Pennsylvania Department of Environmental Protection's (DEP) authority to deny well permits and to suspend drilling, increase potential civil penalties to $100,000 and potential fines for continuous violations to $10,500 per day, extend to 2,500 feet the presumed liability of a well-polluting water supply and require full disclosure of chemicals used in the fracing process (see Daily GPI, June 1). A second bill approved by the committee would raise the minimum royalty payment to 15% of gross proceeds and prohibit royalty deductions for severance taxes, applicable state fees or post-production costs.

But those bills and others with the potential to effect the state's gas industry are being pushed to a back burner the General Assembly's efforts to close a $1 billion budget gap.

On the regulatory front, DEP has said it will publish as soon as Wednesday an updated, expanded list of chemicals used in fracing operations in the state. DEP previously compiled such a list from material safety data sheets drillers submit with their permit applications and posted it online last year.

"In the interest of complete transparency and accuracy of information, [DEP] Secretary [John] Hanger has directed the Bureau of Oil & Gas Management to update the list," DEP spokesman Tom Rathbun said.

The list will included compounds associated with neurological problems or other serious health effects, according to the Associated Press, which reported Tuesday that it had obtained a copy of the report. Concerns about possible health risks from chemicals used in fracing operations have been fanned by the anti-hydraulic fracturing film Gasland, which is airing on Home Box Office and being shown at small screenings around the country.

Regulations that would restrict wastewater discharges from drilling operations in Pennsylvania's Marcellus Shale area to a more stringent 500 milligrams per liter (mg/l) standard, while other new and expanded facilities in general use would be allowed discharges up to a threshold of 2,000 mg/l, appear to be inching toward final approval (see Daily GPI, June 22). The rules, which would require drinking water standard for drilling wastewater emissions at the pipe, have already been approved by Pennsylvania's Independent Regulator Review Commission (see Daily GPI, June 18) and the state's Environmental Quality Board (see Daily GPI, May 18).

The Pennsylvania Senate Environmental Resources and Energy Committee, which has until Thursday to reject the regulations, has scheduled no vote on the issue. Assuming the committee does not vote down the regulations, they would proceed to Pennsylvania Attorney General Tom Corbett's office for a form and legality review. Assuming there are no issues uncovered in that 30-day review process, the rules would then be eligible to be published in the PA Bulletin and would be considered finalized at that point.

And earlier this month DEP announced that 250 commercial vehicles had been taken out of service during a three-day enforcement blitz focused on trucks hauling wastewater from Marcellus Shale natural gas drilling operations. State troopers, working in partnership with DEP, the Pennsylvania Public Utility Commission and the federal Motor Carrier Safety Administration inspected more than 1,100 trucks from June 14-16, DEP said.

Hanger has said lawmakers should look to the recent crafting of "one of the most comprehensive underground mine safety laws in the country" for inspiration when they consider the further regulation of Marcellus Shale natural gas activities in Pennsylvania (see Daily GPI, June 17). Hanger cited contamination caused recently by wells of Cabot Oil and Gas Corp. in which methane migrated to water supplies (see Daily GPI, April 19).

He also noted the activities of EOG Resources Inc, which was ordered to suspend all of its natural gas well drilling activities in the state in the wake of a June 3 blowout at a company well in Clearfield County, PA (see Daily GPI, June 14). Last week EOG was given a green light to resume hydraulic fracturing activities in the state (see Daily GPI, June 28). DEP has not yet given EOG permission to resume well completion activities.

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