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Pennsylvania DEP raises permit fees for shale gas drillers

| Friday, June 13, 2014, 1:30 p.m.
Pittsburgh Tribune-Review
A common sight throughout Washington County, an active drilling site sits on a small hillside surrounded by homes.
An employee from Penneco/Falcon Drilling works on a horizontal oil well off Hartge Road in Upper Burrell on Wednesday, Jan. 9, 2013. Penneco is the first company to ever use horizontal hydraulic fracturing technology for oil drilling on a conventional formation in Pennsylvania.
A Penneco/Falcon Drilling horizontal frack well for oil off Hartge Road in Upper Burrell continues on Wednesday, Jan. 9, 2013. Penneco is the first company to ever use horizontal hydraulic fracturing technology for an oil well in a conventional formation in Pennsylvania.

Pennsylvania is charging the booming natural gas industry more for drilling permits — the first fee hike in nearly five years — which will add about $4.7 million a year for additional inspectors and technology to streamline the permitting process.

Industry and environmentalists were supportive of the increase in fees, which the Department of Environmental Protection said on Friday will rise between 45 and 56 percent, depending on the type of well, starting on Saturday.

Fees will be fixed at $5,000 for horizontal wells and $4,200 for vertical wells — an average increase of $1,800 and $1,300, respectively. Permit fees previously were calculated based on the length of the well. The agency's office that oversees gas drilling is funded entirely from fees, fines and penalties.

“This fee increase will give us the ability to continue to grow and strengthen our program along with the growing industry,” DEP Secretary Christopher Abruzzo said in a written statement.

Permit fees were last increased in October 2009 from $100.

The increases were implemented during a heated gubernatorial campaign over the state's share of revenue from the booming gas drilling industry. Republican Gov. Tom Corbett has been criticized for leaving money on the table by not imposing an extraction tax on the industry that is based on the value of gas being produced. Drillers instead pay a per-well impact fee.

Corbett's challenger, Tom Wolf, the Democratic gubernatorial nominee, has called for a 5 percent tax on extraction and said he would earmark the money for education and the environment. Supporters say a 5 percent tax would generate about $500 million annually.

The impact fee has raised about $200 million a year — about half of which goes directly to communities that host drilling. Taxing companies more would drive them away, Republicans and industry leaders argue.

The permit fee is separate from the impact fee collected from drillers and the taxing issue that has become a key election-year focus. Permit fees support more than half of the $21 million annual budget of the DEP's Office of Oil and Gas Management and save taxpayers money that doesn't have to be pulled from the general fund, according to a release from the DEP.

Officials in Wolf's campaign could not be reached for comment on the fee increase.

Taxing the industry is gaining popularity in Harrisburg as lawmakers wrangle with a $1.5 billion budget deficit.

Corbett has dealt with complaints about the permitting program from drillers. In 2012, he ordered the DEP to speed up reviews and set deadlines for issuing permits.

“Under the Corbett administration, there has been a strategic, proactive approach to the oversight of this industry,” Abruzzo said.

The drilling industry accepts the increase as necessary, said Travis Windle, a spokesman for the Marcellus Shale Coalition.

“We certainly understand that taxpayers shouldn't shoulder the cost of additional resources at the DEP,” he said.

Windle said Pennsylvania's natural gas regulation costs are among the highest in the nation, but he said “it's incumbent upon us to make sure our regulators have the resources they need to do their jobs effectively, which they're doing.”

Davitt Woodwell, executive vice president of the Pennsylvania Environmental Council, said it's important that DEP programs have the financial resources to carry out their responsibilities.

“The DEP, in terms of oil and gas, has been working hard to make sure their costs within that program are matched with the permit fees,” Woodwell said. “It's good news, because we want to make sure that permitting gets enough attention, the inspections get enough attention, and enforcement is carried out the way it needs to be.”

EQT Corp., which expects to drill 120 wells in the state this year, “has no objection to the new fee structure,” spokeswoman Natalie Cox said.

“It simplifies what was previously a multi-step calculation; and we expect it will make the permitting process more efficient for both the agency and producers,” she said.

Natural gas production from the Marcellus shale has ramped up significantly in the past several years, according to the federal Energy Information Administration. Production is expected to exceed 13 billion cubic feet per day this year, up from less than 2 billion in 2010.

DEP is anticipating $11.4 million in permit fee revenue from natural gas drillers this fiscal year, a 20 percent increase over the previous fiscal year, spokeswoman Morgan Wagner said.

The oil and gas management unit has 202 employees, with 83 inspectors and 119 technical staff, Wagner said. The additional revenue will allow the hiring of 36 employees over the next two years, mostly for additional support staff and inspectors.

Beyond paying for additional staff and infrastructure upgrades, the permitting change gives the office more certainty in budgeting, she said. Prior to the rule, the fee varied and was charged based on the length of the well bore. Now fees will be fixed.

“It provides some revenue predictably,” she said. “We're able to project what the budget will be a little bit more.”

Alex Nixon and Chris Fleisher are Trib Total Media staff writers. Reach Nixon at 412-320-7928 or anixon@tribweb.com. Reach Fleisher at 412-320- 7854 or cfleisher@tribweb.com.

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