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Wolf tax proposal puts Beaver County Shell plant at risk, gas group head says

| Wednesday, Feb. 25, 2015, 11:30 p.m.

Royal Dutch Shell warned Gov. Tom Wolf that policies which hurt gas production could affect the company's decision on whether to build a multibillion-dollar plant in Beaver County to turn ethane into plastics, the head of a gas industry group said Wednesday.

“I sat in a meeting with Gov. Wolf in August, where leadership from Shell looked the now-governor directly in the eye and said, ‘If you jeopardize the ethane supply, we likely don't invest here,' ” Marcellus Shale Coalition President David Spigelmyer told Tribune-Review editors and reporters. “That's a big deal. We need to make sure we have opportunities to invest and grow.”

The head of the North Fayette-based advocacy group and industry lobbyist said he has no inside knowledge on whether Shell will build the so-called ethane cracker.

Spigelmyer said Wolf's proposal to collect 5 percent of the money producers get from wells and 4.7 cents for every thousand cubic feet coming from wells threatens investments and could slow production of gas and related liquids, such as ethane.

Shell said it determined in April it would have enough ethane to operate the plant if it builds, with 10 contracts lasting up to 20 years. The company said the plant could employ 400 people and outside projections put the number of related jobs in the thousands.

“At no time has Shell linked the potential future of the proposed petrochemical facility with Gov. Wolf's proposed natural gas severance tax,” company spokeswoman Kimberly Windon said in an email. “Shell has always maintained that the ethane supply for the proposed facility would come from the region.”

Wolf's office confirmed he met while campaigning in Pittsburgh last summer with energy industry officials, but would not specify who attended, or say who initiated the sit-down.

“The severance tax is not going to drive industry out of the state,” said Wolf spokesman Jeff Sheridan. He said Wolf “wants this industry to succeed. He understands the plant is a game-changer.”

Wolf's plan to fund public education with up to $1 billion a year from the gas taxes, one of his top campaign platforms in last year's election, would replace a per-well impact fee that collects more than $200 million a year. Spigelmyer repeated industry concerns that the tax is considered at the wrong time for a sector cutting back on drilling plans — and in some cases laying off workers — because of low gas and oil prices.

Companies working in Pennsylvania, which last year took a record amount of gas from shale, have announced a combined $8 billion in reductions to capital spending this year, Spigelmyer said. Gas prices that hit two-year lows last month, combined with a global crash in oil prices, reduced the number of drilling rigs operating in shale plays to their lowest point in years. Companies that contract with gas producers have announced thousands of layoffs nationwide.

“This industry today cannot bear an additional burden. We're already underwater in a lot of areas of the commonwealth,” he said.

Despite the cuts, the industry has shown no sign of slowing production because of more efficient drilling strategies. Fort Worth-based Range Resources Corp., Pennsylvania's third largest shale producer, cut its spending by 46 percent and laid off 8 percent of its workforce in Oklahoma but predicts a 20 percent increase in gas, propane and ethane production.

“We think there's going to be a lot of gas demand, and gas is going to be a good place to be,” CEO Jeff Ventura told analysts Wednesday, a day after Range reported record profits and revenues last year. Range plans to provide ethane to the cracker if Shell builds it.

Shell exercised its option to buy a former zinc smelter site along the Ohio River from Horsehead Holding Corp., applied for environmental permits and has spent millions of dollars preparing the site. But Shell officials said it could be years before the company decides whether to build.

Uncertainty over taxes, combined with lower prices producers are getting in areas with limited pipeline access, threaten such investments, Spigelmyer said. Last week, driller Huntley & Huntley told Harmar officials it was canceling a plan to drill there because of concerns over the tax.

“We believe that the tax approach that is being embraced by the Wolf administration is an onerous one that would make us uncompetitive with neighboring Ohio,” Spigelmyer said.

The quick increase in production in Appalachia before pipelines were built to take gas to attractive markets fed a glut that pushes prices lower than the national benchmark, especially in the Northeast corner of the state. Spigelmyer said Wolf's proposal results in an 8.4 percent tax in that part of the state and a 7.1 percent rate closer to Pittsburgh.

Sheridan said Wolf's office puts the effective rate at 5.7 to 5.8 percent.

“What the governor is proposing to do is invest in education, but also put some money into building a sustainable bridge to the future,” he said.

David Conti is a staff writer for Trib Total Media. He can be reached at 412-388-5802 or dconti@tribweb.com.

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