Seventy to 80 percent of Pennsylvanians support a reasonable severance tax and that tax is necessary to ensure that all the state's citizens benefit from the economic boost generated by production of Marcellus shale gas, John Hanger, secretary of the Pennsylvania Dept. of Environmental Protection (DEP), told a gathering of about 350 producers Tuesday.

Hanger pointed to the examples of the severance taxes used by Texas and Alaska to spread the benefits of the oil and gas resources to all citizens. He also said he fully supported allocating a fixed amount of the severance tax revenue to local communities and believed a significant portion should go to address environmental issues.

And the DEP secretary advised that Pennsylvania Gov. Rendell will not trade support for the tax for rules favored by the industry on pooling and spacing. "The governor will not engage in a deal of one for another." Rendell has promised a vote on the severance tax by Oct. 1.

"The issues of pooling and spacing will have to be addressed separately," Hanger told the annual meeting of the Pennsylvania Independent Oil and Gas Association (PIOGA) in Monroeville, PA. "Getting appropriate spacing is critical," Hanger said, adding that he did not see the necessity for wells every quarter mile. In addition to a conference program, the producer group hosted an indoor/outdoor exhibit attended by nearly 2,000 in the western Pennsylvania community just outside Pittsburgh.

Hanger stressed how important it was for the producing industry to strive for excellence of operations in safety and to protect Pennsylvania natural resources to convince the public that the natural gas industry actually was providing a net benefit for citizens. "I get questions coming in every day as to why Pennsylvania doesn't follow New York and impose a moratorium on drilling on private lands. I'm opposed to a moratorium on private lands, and the governor has stated flat out he did not support a moratorium on private lands."

"But the number of people asking that question has risen significantly," so the future of the industry depends on excellence of operations. "There is no other way of ensuring a bright future. You have to have a majority of Pennsylvanians believe natural gas is a good thing for Pennsylvania. You have to build a brand for natural gas and make sure you can protect its identity as a cleaner fuel.

"Gov. Rendell and myself believe natural gas is good and Pennsylvania gas is the best." But "there is no perfect energy source. The public can't be fooled; they won't be fooled.

"The public has good strong reasons for supporting this industry, but their confidence has been shaken by the BP oil spill and other incidents" such as the well site accidents, which have claimed five lives in the state this year. Hanger said he had an A list of companies based on the number of violations reported. Some 1,500 violations could have been reduced to 200 if all companies operated like those on the A list.

Hanger pointed to the cooperation producers have experienced in the state. In the Marcellus area in Pennsylvania more than 4,500 drilling permits have been issued since 2005, with 28 days the average time to process a permit. In that time period 1,916 wells have been drilled "on the road to seeing the Marcellus supply at least 10% of U.S. gas production."

In a wide-ranging speech, Hanger also said "huge expectations" have been created for the job market in Pennsylvania, expectations that would be impossible to meet. "Every person in the state who needs a job thinks he can find it in the Marcellus industry." There is starting to be a backlash because the expectations were so high and no matter how many people the industry hires it can't hire everyone. He said colleges and universities were putting dollars into educating workers for the industry, but more needs to be done.

The DEP secretary supported the use of natural gas as a transportation fuel, "but there hasn't been enough action there." The industry should lead the drive, but there could be a partnering role for government in building demand.

Hanger defended the issuance of new rules limiting total dissolved solids (TDS), saying a number of the state's streams and rivers were being stressed by the rising amount of TDS. "Drinking water companies have no ability to get TDS out." He advised that the new rules would affect a wide range of other industries in the state, not just oil and gas producers. Another speaker at the PIOGA conference advised that conventional shallow well producers would take a bigger hit from the rules compared to large Marcellus producers.

The state government also is moving forward toward new rules regarding well construction with a final vote scheduled for Oct. 12, Hanger said. Gas migration issues "continue to be a concern, but companies are working on it."

Carrying out the DEP's mandate to monitor the growing Marcellus shale industry, Hanger's staff has more than doubled to 37 employees with another 68 to be added this year.

©Copyright 2010 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.