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Westmoreland

Shale drilling fees debated amid hints of rebound

| Saturday, Jan. 14, 2017, 5:03 p.m.
A common sight throughout Washington County, an active drilling site sits on a small hillside surrounded by homes.
Pittsburgh Tribune-Review
A common sight throughout Washington County, an active drilling site sits on a small hillside surrounded by homes.
In this June 25, 2012 file photo, a crew works on a gas drilling rig at a well site for shale based natural gas in Zelienople, Pa.  (AP Photo/Keith Srakocic)
In this June 25, 2012 file photo, a crew works on a gas drilling rig at a well site for shale based natural gas in Zelienople, Pa. (AP Photo/Keith Srakocic)
This April 1, 2016, photo shows a private home, foreground, with a shale gas drilling rig in the background, in Washington, Pa.
This April 1, 2016, photo shows a private home, foreground, with a shale gas drilling rig in the background, in Washington, Pa.

An anticipated uptick, however slight, in shale gas production in 2017 is on the horizon, but it's unclear how that might impact policy discussions in Harrisburg, analysts say.

Gov. Tom Wolf again plans to call for a severance tax on natural-gas drilling when he presents his budget Feb. 7.

"He strongly believes that a severance tax will provide benefits to the people of Pennsylvania and, in turn, the industry by creating a mutual benefit from production for communities and the industry," said J.J. Abbott, a spokesman for the governor. "There are numerous indications that production and prices will increase over the next year."

Republican leaders are hedging, saying they don't support a severance tax "at this point."

Some indicators show the industry — which has been largely dormant due, in part, to depressed prices — could bounce back this year.

The Department of Environmental Protection in the final quarter of 2016 authorized eight new well permits in Westmoreland County — four in Salem Township, two in Derry Township and two in Washington Township. That's six more than were issued in the same quarter of 2015.

For the year, the state issued 35 drilling permits for Westmoreland County — two fewer than 2015.

Across the state, DEP officials issued 1,306 permits in 2016 compared to 2,043 in 2015.

New permitting alone, however, doesn't signal increased production.

Two permits for Oklahoma-based WPX Energy in Derry Township were acquired to keep the sites active for potential buyers.

"We do not have any drilling planned for this year," spokesman Kelly Swan said. "We, for the most part, exited Pennsylvania. Those assets are for sale."

Some companies have said they plan to invest more this year than in 2016 across the shale region.

Consol Energy plans to target the deeper Utica shale formation this year, including in Westmoreland County, spokesman Brian Aiello said.

Its Gaut 4I well, drilled here in 2015, is the second-largest producing Utica well tested to date across the industry. The Canonsburg-based company announced plans to spend $555 million on gas exploration and production in 2017, up from $205 million in 2016, and grow production by 5 percent over last year.

The 2017 investment in gas well development by Pittsburgh-based EQT Corp. is expected to be $1.3 billion — a nearly $500 million increase over 2016 — along with an additional 76 new Marcellus wells in Pennsylvania.

David Elkin, EQT's senior vice president of drilling and completions, said the industry downturn in 2015 and 2016 has "allowed EQT to continue to make profitable investments in the current gas price market."

EQT has made long-term commitments with suppliers and contractors in exchange for continued lower prices for services, he said. The company invested more to expand its acreage, allowing it to lengthen its horizontal drilling.

Peak years passed

Any resurgence in shale development this year is unlikely to be as big as 2012 through 2015, peak years of unconventional shale development, according to Aimee Curtright, an energy policy expert at Rand Corp. in Pittsburgh.

"It's hard to imagine it's going to get more aggressive than that," she said.

Companies drilling the Utica shale formation are chasing the higher value of the mix that comes out of the ground, including byproducts like ethane, which yields more value and can help a company's bottom line amid continual low natural gas prices.

"I suspect the reason they're developing is they're thinking, 'Gosh, prices have been low for so long that the pendulum has to swing the other way, right?' " Curtright said.

Depressed gas prices and slowed production have been concerns expressed by legislative Republicans opposed to Wolf's call for a severance tax increase during his first two years in office.

"We already have an unconventional drilling tax," said Steve Miskin, House GOP spokesman, referring to the impact fee. "And it helps the local communities that are impacted by it and statewide environmental programs, DEP, as well as other agencies. There's no appetite to raise taxes right now."

Jennifer Kocher, spokeswoman for Senate Majority Leader Jake Corman, R-Centre County, expressed the same sentiment.

"We have an industry that has paid a billion dollars in the impact fee and communities affected by that industry (are) benefiting from that money," she said.

New fracking study

Under the current tax structure, a surge in production alone is "definitely not a panacea for the state budget," Curtright said.

But increased productivity could continue to benefit local governments that receive funds from the per-well impact fee.

Local governments benefited during the boom years of unconventional shale development in Pennsylvania's Marcellus region, including Westmoreland County. The impact fee generated more than $1 billion for environmental programs, conservation districts and local governments throughout the shale region. Local governments in the greater Pittsburgh region received about $150 million.

Economists at the Energy Policy Institute at the University of Chicago released a study in late December on hydraulic fracturing, or fracking — the process of breaking deep shale deposits to release gas, which revolutionized the oil and gas industry.

The study reported counties with high fracking potential saw benefits for local economies, including gains in total income, employment and salaries. Local governments saw substantial increases in revenues above the average increases in expenditures.

The study found fracking has generated benefits that outweighed impacts on quality of life, including water, air and noise pollution, as well as crime. It found marginally significant estimates of higher violent crime.

David Spigelmyer, president of the Marcellus Shale Coalition, a Pittsburgh-based industry trade group, said the report "serves as a reminder that we need commonsense policies that encourage natural gas production and use, especially for regional manufacturers and power generators."

Kevin Zwick is a Tribune-Review staff writer. Reach him at 724-850-2856 or kzwick@tribweb.com.

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