Budget

The Pennsylvania Department of Environmental Protection’sOffice of Oil and Gas Management faces a $2.9 million deficit in fiscal year (FY) 2016-2017, which begins in July, according to the state budget office. It also faces a $9.8 million deficit in FY 2017-2018. The oil and gas office, which is staffed by 227 people and regulates the state’s oil and natural gas industry, is funded entirely by permit fees, which have plummeted with the decline in activity in the state related to low commodity prices. Last month, DEP Secretary John Quigley said the DEP remains severely underfunded and understaffed (see Shale Daily,March 1). The deficit means that the office can’t fill vacant positions. There were 17 rigs running in the state at the end of last week, compared to 50 at the same time last year, according to Baker Hughes Inc. Quigley told lawmakers in March during state budget hearings that the situation could lead to another increase in oil and gas permit fees, which were last increased in 2014 (see Shale Daily,June 13, 2014). The agency is not alone: the state faces a $2 billion budget deficit, and lawmakers only recently passed the rest of the FY 2015-2016 budget after a nine month impasse (see Shale Daily,March 23).

Exco Resources Inc. became the latest operator to make moves to preserve liquidity on Wednesday, slashing its capital expenditures (capex) budget for 2016 by more than two-thirds and announcing plans to spud and complete just a handful of wells in the Haynesville and Bossier shales.

West Virginia’s Republican-controlled legislature concluded this year’s 60-day regular session on Saturday without passing a balanced budget. Democratic Gov.Earl Ray Tomblin indicated he would likely have to call lawmakers back for a special session to resolve the impasse. The state’s general revenue budget has grown rapidly over the last decade, and lawmakers are gridlocked over how to balance the $4.3 billion budget and plug a nearly $400 million deficit. The state Senate shelved a House-crafted budget over the weekend that would have relied on $72 million in spending cuts for state agencies, while the House has rejected a Senate proposal that would raise $139 million in tax increases on tobacco products, among other things. The state has long relied on its coal and natural gas severance taxes to balance its budget, but the commodities downturn is now straining its finances. Overall severance tax collections rose by 2% through the first nine months of fiscal year (FY) 2015 but fell 31% through the final three months, reflecting coal’s ongoing downturn and a drop in oil and gas prices. The state has projected that FY 2016 severance tax collections could fall nearly $192 million short of projections (see Shale Daily,Oct. 7, 2015). The House last week shelved a bill passed by the Senate that would have lowered the coal and gas severance taxes (see Shale Daily,March 8).

In an ongoing effort to better monetize its assets and generate more cash flow for this year’s drilling program, Rex Energy Corp. said late Thursday it has secured another joint venture (JV) with a private investment firm that could net it up to $175 million and reduce this year’s budget.

ExxonMobil Corp. has sharply reduced its capital spending plans this year but management is eyeing potential acquisitions while commodity prices are weak, CEO Rex Tillerson said Wednesday. The only issue is that sellers still have unrealistic price expectations, he said during the annual analyst conference in New York City.

Chesapeake Energy Corp., once the most active producer in the U.S. onshore, has reduced its rig count to less than 10 and cut capital spending by more than half as it shores up its balance sheet for the long haul. With a fourth quarter loss of more than $2.2 billion, the No. 2 U.S. natural gas producer also is continuing to negotiate with midstream partners to revise contracts that better fit its downgraded development plans.

While it plans to cut its budget and reduce its rig count this year, Appalachian pure-play operator Antero Resources Corp. still has plans for a robust 2016, calling for $1.4 billion in capital expenditures to complete 110 horizontal shale wells in the Marcellus and Utica shales.

Cabot Oil & Gas Corp. has plans to stay flexible this year amid an uncertain commodity price environment that’s further complicated by a lack of clarity about when some of the company’s key infrastructure projects will come online to serve bottlenecked Marcellus Shale production in Northeast Pennsylvania.

Pennsylvania’s leading oil and gas trade groups on Wednesday renewed their commitment to fighting Democratic Gov. Tom Wolf’s latest proposal to enact a severance tax on production, saying operators can’t absorb more costs during the downturn and repeating that there can’t be a compromise.