Archive for the ‘DLP Law’ Category

By Steve McConnell (Staff Writer)
Published: September 10, 2010

Economic development organizations and landowner groups in Wayne County issued a stinging criticism Thursday against the Delaware River Basin Commission for enacting a moratorium on natural gas drilling and causing a deep negative economic impact by effectively halting development.

The pro-drilling groups, including landowners’ alliances that have secured more than 100,000 acres in Wayne County for gas development and the Wayne County Chamber of Commerce, also warned the commission not to develop stringent regulations that would exceed current state environmental regulations because it could deter companies from operating there.

“We want to get the debate started and put our position out,” said Peter Wynne, spokesman, Northern Wayne Property Owners Alliance. “We expect there is going to be a degree of severity that exceeds” the state Department of Environmental Protection.

The commission, which has regulated water resources in the four-state area that drains into the Delaware River since 1961, including a large swath of eastern Pennsylvania, has been developing its own environmental regulations over the industry in light of an increased interest in drilling for natural gas in the watershed.

While Marcellus Shale drilling is accelerating throughout the state and regionally in Susquehanna and Bradford counties, there are no producing wells in out the 13,539-square-mile Delaware River Basin, though Wayne County has lured multimillion-dollar land-leasing investments from several natural gas companies since 2007. The Northern Wayne Property Owners Alliance, encompassing 100,000 acres mostly north of Honesdale, finalized a land-lease agreement valued at a more than $100 million with New York City-based Hess Corp. and Houston-based Newfield Exploration Co. in late 2009.

Meanwhile, the commission enacted a drilling moratorium in May, in particular on production wells, but is allowing 10 exploratory wells to go forward in Wayne County while the regulations are developed.

The moratorium caused Newfield Exploration Co. and Hess Corp. to halt land-lease payments until the drilling ban is lifted. This could amount to the loss of $220 million in payments to leaseholders – not including royalties on producing natural gas wells – if Newfield and Hess Corp. decided to pull out of Wayne County, Mr. Wynne has said.

The pro-drilling groups’ 10-page letter, which was widely distributed to federal, state and local government officials Thursday and to the five-member commission board, urges the commission to consider the “unparalleled economic opportunities” gas drilling could yield while urging them to avoid the “infinite costs” associated with stiff environmental regulations. It also cites the poor state of the economy in Wayne County, a largely rural area with little to no economic growth in recent years, and how gas drilling could solve these “severe” challenges.

The letter also includes a series of recommendations the commission should take in its effort to regulate the industry. Efforts to reach Wayne County economic development officials were unsuccessful.

Nevertheless, the river basin commission believes it must protect the integrity of the Delaware River watershed – home to the Delaware Water Gap National Recreation Area and part of the National Wild and Scenic Rivers System – while allowing natural gas drilling to occur.

Commission spokesman Clarke Rupert said the agency is trying to ensure that water used by an estimated 15 million people in four states is not negatively impacted by the industry, and criticism of their efforts to ensure that is unfair.

“Do you want to do it quickly … or to get it right? Our approach is to get it right,” Mr. Rupert said. Mr. Rupert said that he does not know what the makeup of the regulations will be, in part because once draft regulations are published it will undergo a series of public comment and public hearing periods that may tweak its final form.

The commission hopes to adopt final regulations by the end of this year, although that is subject to change.

Contact the writer: smcconnell@timesshamrock.com

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Copyright:  The Scranton Times

Bobby worked for the AAA Warehouse and Ladder Company for over twenty years without ever sustaining an injury. Bobby’s luck ran out though, when he was struck in the mouth by a ladder causing Bobby to lose three of his front teeth. As a result of the injury, Bobby only missed several days of work and the Workers’ Compensation carrier paid for his dental bills. Since Bobby did not miss seven consecutive days of work, he was not entitled to any loss time benefits.

ISSUE: Does Bobby have any other remedy?

YES: Yes. The Pennsylvania Workers’ Compensation Act does provide for benefits when one suffers a disfiguring injury to the head, face or neck. In this case, Bobby lost three of his front teeth giving him somewhat of a pumpkin head appearance when he smiled. Bobby was able to get a prosthesis that he wore to replace the teeth, but nevertheless when he did not have that in his mouth and he smiled, his appearance was greatly affected.

Bobby will be entitled to anywhere from one up to two-hundred seventy-five weeks of his compensation rate based upon what a Judge feels is an appropriate award. In a case such as Bobby’s, he may receive as much as 100 weeks of compensation because of the disfigurement. The most common types of disfigurement awards are based upon scarring of the face, head or neck.

Disclaimer: The above article is for instructive purposes only and each case is fact sensitive. Consultation with an attorney should be obtained instead of reliance upon the legal issues discussed in this column.

By Laura Legere (Staff Writer)
Published: September 9, 2010

Marcellus Shale gas wells in Northeast and Northcentral Pennsylvania led the state in natural gas production last year, exceeding even industry predictions about the promise of the gas-rich shale, according to well production data released for the first time by the state.

In the 12 months between July 1, 2009. and June 30, 2010, the state’s 632 producing Marcellus wells released 180 billion cubic feet of gas – an amount that more than doubles Pennsylvania’s annual natural gas production from the years before the shale exploration began.

The well-by-well data were released for the first time since the governor signed a law in March that required Marcellus operators to report their production totals every six months and eliminated a provision that would have kept the data confidential for five years.

The production data posted on the Department of Environmental Protection’s website appeared much earlier than the Nov. 1 date the department set for making the information available online. It provides the first public look at how much gas the booming industry is pulling from the shale that underlies three-fifths of the state.

Eight of the 10 wells that produced the largest volume of gas last year are in Susquehanna County, including the top well – Chesapeake Appalachia LLC’s Clapper 2H well in Auburn Twp. – which produced 2.8 billion cubic feet of gas over 270 days. Of the top 20 producing wells, all but one are in Susquehanna, Bradford or Tioga counties.

Raymond Deacon, an analyst with Pritchard Capital Partners LLC, sorted the wells’ production depending on how long they were on line in order to measure their performance.

“It seemed like in every case, all the counties in the Northeast really stood out as being among the strongest in terms of production,” he said.

“It shows the Northeast looks much more prolific in terms of how much you’re getting out of the wells.”

Terry Engelder, a geosciences professor at Penn State University who studies the Marcellus Shale, said the production reports show that the expected ultimate recovery for the wells – the cumulative amount of gas each well will produce – is going to exceed predictions made by the industry in the earliest days of the shale exploration.

Dr. Engelder compared the average cumulative production for Marcellus wells drilled horizontally in the shale in a five-county core area in the Northcentral and Northeast part of the state last year to predictions about the average cumulative production of Marcellus wells released by Chesapeake Energy to investors in 2008.

The actual numbers last year surpassed the company’s expectations, even though “expectations were quite high,” Dr. Engelder said.

“Everybody is going to be happy with these numbers,” he said. “These numbers are huge.”

John Harper, chief of the mineral resources division of the Pennsylvania Geological Survey, noted that the Marcellus wells that produced gas in the last fiscal year averaged almost 2 million cubic feet per day – “a lot better” than the earliest dozen or so Marcellus wells in the state that produced an average of only 89,000 cubic feet per day.

“The amount of Marcellus natural gas reported is very encouraging,” he said.

The production numbers also help create a fuller picture of the economic potential of the shale.

The Marcellus gas produced in the state last year was worth about $720 million, Dr. Engelder said – a large number but much less than the cost of drilling and developing the wells.

Matt Pitzarella, a spokesman for Range Resources, which reported a total production of about 35 billion cubic feet of natural gas and 402,000 barrels of natural gas liquids last year, said the report indicates what the industry believed, “which is that it is a very large natural gas discovery and could be one of the largest anywhere when it’s all said and done. It’s just going to take time.”

Mr. Pitzarella added that the “very promising” production numbers in the report represent the earliest stages of the shale development, and it will still take several years for each well to break even.

“It’s very much a long-term investment,” he said.

Mr. Harper pointed out the production data’s implications for a state severance tax on the shale gas, which the legislature plans to adopt by Oct. 1.

If a 5 percent tax had been levied on the value of all Marcellus gas produced last fiscal year, it would have earned the state around $40.5 million, he said.

Contact the writer: llegere@timesshamrock.com

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Copyright:  The Scranton Times

By Elizabeth Skrapits (Staff Writer)
Published: September 7, 2010

TUNKHANNOCK – Four natural gas companies have leased mineral rights to substantial portions of land throughout Wyoming County, and all four have exploratory gas wells under way.

Depending on what those wells produce, the county could be on the brink of a potential natural gas boom.

“It’s beginning. It’s starting,” said Phillip Corey of Carrizo Marcellus LLC.

Carrizo is one of the four Cs: the gas companies most active in Wyoming County. The others are Chesapeake Appalachia LLC; Chief Oil & Gas LLC and Citrus Energy Corp.

The State Department of Environmental Protection’s active well inventory as of Aug. 30 shows wells are in various stages of progress for Carrizo in Washington Township; Chesapeake in Braintrim, Mehoopany, Meshoppen, Northmoreland, Washington and Windham townships; Chief in Forkston, Mehoopany, Monroe and Nicholson townships; and Citrus in Mehoopany and Washington townships.

However, only a few wells have been completed, and in some cases, natural gas production could be months away.

Carrizo: Seeking permits

Corey said Carrizo’s first natural gas well in Wyoming County, in Washington Township, is under way. The drilling rig arrived at the site Aug. 30, he said.

Carrizo also has two drilling sites picked out further south: one on a parcel owned by Barbara Shields in Monroe Township and one on the Sordoni family’s Sterling Farms in Noxen, not far from the Luzerne County border.

Corey didn’t know exactly when operations will commence at those sites, but does anticipate making preparations for drilling before inclement weather sets in, and to be “out drilling some time this winter.”

“We did file for our permits,” he said. “Now we’re waiting on the state to grant the various permits we’re going to need before we can drill.”

Besides permission from DEP, Carrizo will need a highway occupancy permit from Pennsylvania Department of Transportation to construct an access road off Route 29 for the Shields site, according to Corey. Carrizo also has to get Wyoming County planning and zoning approval.

Chief: Ready but reviewing

Drilling started on July 7 for Chief Oil & Gas’s first well in Wyoming County, on land owned by the Polovitch family in Nicholson Township. However, it has not yet been hydraulically fractured, Chief Spokeswoman Kristi Gittins said.

Hydraulic fracturing or “fracking” involves blasting millions of gallons of water deep underground to crack the shale and release the natural gas. Wells must be fracked in order to produce.

Gittins said it could take weeks or even months before the well is fracked. In new areas, Chief typically takes more time after drilling before scheduling the fracking, in order to gather and review information.

“There is no readily available pipeline for Marcellus wells in Wyoming (County) yet either, so even when a well is drilled and fracked and has shown that gas can be produced, it will still be months before any gas gets on a pipeline and off to market and any royalties paid,” she said.

One of the wells permitted and ready to be drilled is on Robert Longmore’s Noxen farm, but it’s too early to determine when work will start, according to Gittins.

“None of them are on the drilling schedule at this time so the earliest would likely be end of this year,” she said.

“But my canned statement is ‘drilling schedules change frequently.’ Bottom line, the wells are permitted and we could move a rig in any time. Moving in a rig to drill is not a process that goes unnoticed, and we are open with our plans and talking to the public about them.”

Chief holds public meetings to introduce the company to the community; it also holds informational meetings with local emergency responders and municipal officials, gives tours of its operations, and has participated with counties in starting gas drilling task force groups, Gittins said.

“Once we know more about our plans in Wyoming (County), we will schedule a community meeting,” she said.

Chesapeake: Preparing

Throughout the summer, Chesapeake has been filing hundreds of leases in the Wyoming County recorder of deeds office.

However, company spokesmen would not comment on future plans for expansion, although they did note that two wells have already been drilled and four more sites are in the works.

DEP records show that drilling started Aug. 27, 2009 on Chesapeake’s Skoronski well in Northmoreland Township, and on March 9 for the company’s Cappucci well in Mehoopany.

“In the coming year, operations in the county are expected to continue,” Brian Grove, Chesapeake’s senior director for corporate development, stated in an e-mail.

Citrus: Squeezing further

Steve Myers, director of Land and Legal Affairs for Citrus, said the company is drilling five wells in the Mehoopany and Washington Township area in partnership with Procter & Gamble, and now is looking to move into Meshoppen. He said Citrus is “just kind of moving out a step away from existing production.”

“We’ll go across the (Susquehanna) river to the west, drill on that side,” Myers said. “We’ll be all over that tri-township area.”

He stressed that expansion will depend upon success.

Looking to Luzerne

Myers confirmed that other natural gas companies, particularly those drilling in the southern municipalities in Wyoming County, are keeping an eye on what happens with Encana Oil & Gas USA Inc.

Encana has started drilling the first of two planned exploratory wells in Luzerne County at a site owned by Edward Buda off Route 118 in Fairmount Township. Site preparation is nearing completion for the second well, on Paul and Amy Salansky’s Zosh Road property in Lake Township.

Geologists, including Penn State professor and Marcellus Shale expert Terry Engelder, say there tends to be less natural gas around anthracite coal-producing areas. Route 118 is generally considered to be the dividing line, below which the natural gas has mostly been “cooked” out of the shale, but above which it is plentiful.

If Encana is successful in drilling so far south, it will encourage other natural gas companies, Myers believes.

But there’s an eastern boundary to watch out for, too: Wayne and Lackawanna counties may not be fruitful, according to Myers.

“There’s a line in there somewhere. As things progress and people drill closer to it, it will have more definition,” he said.

eskrapits@citizensvoice.com, 570-821-2072

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Copyright:  The Citizens Voice

By Laura Legere (Staff Writer)
Published: September 3, 2010

The growing Marcellus Shale natural gas drilling industry is taking hold in Northeast Pennsylvania, but the state’s newest economic player is not yet big enough in the Scranton/Wilkes-Barre/Hazleton metro area to save the region from recording disappointing unemployment numbers in July.

Joblessness for the metro area has increased to a seasonally adjusted 10.4 percent – far higher than the seasonally adjusted 7.6 percent unemployment rate in Bradford County, a hotbed of Marcellus Shale drilling where unemployment dropped nearly 1 percentage point since last July.

Teri Ooms, executive director of the Institute for Public Policy and Economic Development, said the industry did not improve the region’s unemployment numbers because much of the drilling activity is not happening in Lackawanna and Luzerne counties.

She expects that active drilling in Wyoming County – the third county in the metropolitan statistical area – will spur some improvement in future unemployment numbers.

“I consider Lackawanna to be adjacent to the core drilling counties at this point,” she said. “There will be some residual employment improvement” because of that proximity, she said, but “we’re not going to see an immediate impact.”

She added that as the closest urban centers to drilling in more rural counties, Scranton and Wilkes-Barre will benefit from the influx of drilling nearby.

“People don’t do all of their living and working and procuring of goods and services within a single jurisdiction,” she said.

One factor that will improve the employment picture for local workers looking for jobs connected to the industry is the expansion of area training centers and programs for Marcellus Shale jobs.

Lackawanna, Johnson and Keystone colleges have all begun offering courses, programs and other training for industry-related jobs, while Pathstone, a human services agency, is coordinating training for more than 200 people in welding and diesel mechanics for jobs in the industry.

At Johnson College, which recently reopened its Welding Training Center after an eight-year hiatus, three students are currently in a four-month certificate program to learn the welding skills necessary for natural gas pipelines, Continuing Education Director Marie Allison said.

The college also is taking applications for its next session, which will begin in September.

But it takes time for welders to be trained in a new skill, and more time for them to master it, which means new gas industry welders will not be able to match the pay grade and ability of workers being brought in from other drilling states immediately, she said.

Once trained, local welders will be able to transfer their skills to other industries in the region even as drilling activity moves to other parts of the state or country.

“They won’t have to take (those skills) to other states,” she said. “They could stay local.”

Contact the writer: llegere@timesshamrock.com

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Copyright:  The Scranton Times

In light of the recent salmonella outbreak involving tainted eggs, questions have been posed with respect to food product safety and regulation. Labeling products as “organic” and “free range” has also called to question what exactly is required to allow products to meet these classifications. The USDA defines “free range” or “free roaming” poultry by indicating “producers must demonstrate to the Agency that the poultry has been allowed access to the outside” Just what does that mean? The U.S. Department of Agriculture Food Safety and Inspection Service (FSIS) requires that chickens raised for their meat have ACCESS to the outside in order to receive the “free range” certification. However, there is no requirement for access to pasture or green spaces. So poultry can have “free range” certification but have access to only dirt or gravel .
Surprisingly, free range chicken eggs have no legal definition in the United States. As a result free range chicken egg producers have no common standard for what the term “free range” actually means. So egg farmers can sell their eggs as “free range” simply because their cages are two or three inches above average size, or because there is a window in the shed where the chickens are raised.

By Laura Legere (Staff Writer)
Published: September 2, 2010

State police and the Department of Environmental Protection will increase funding for roadside inspections of waste haulers, including trash trucks and wastewater tankers involved in the Marcellus Shale natural gas drilling industry, the agencies announced Wednesday.

A memorandum signed by the agencies allows for DEP to reimburse the state police up to $550,000 for the program through July 2011. The funding, from an account supported by fees, fines and penalties paid by the waste-hauling industry, will allow the unannounced roadside inspections to run longer and more often, DEP spokesman Tom Rathbun said.

DEP Secretary John Hanger and state police Commissioner Frank E. Pawlowski both praised the program, commonly known as FracNet and TrashNet. Mr. Hanger said it “has proven to be an effective method in addressing waste hauling safety and compliance issues throughout the state, and in putting drilling operators and their contractors on notice that we expect them to comply with our laws.”

Between January and July, the inspections found that more than 40 percent of the large trucks serving the Marcellus Shale industry were operating in violation of state motor carrier safety rules – a violation rate 10 to 17 percentage points higher than the trucking industry’s average national out-of-service violation rate since 2006, according to the DEP.

A three-day inspection of Marcellus Shale wastewater haulers in June placed 250 commercial vehicles out of service, while 770 of more than 4,300 waste haulers inspected by the agencies in 2009 were placed out of service.

The inspections check for proper signs, logs and authorizations, as well as weight, leaks and safety equipment.

Contact the writer: llegere@timesshamrock.com

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Copyright:  The Scranton Times

Jimmy had just started college as a freshman and was walking through the student union of a school. He was approached by a representative from a credit card company asking if he wanted to open up a credit card. This seemed like a good idea to Jimmy, so he signed up and received in the mail shortly thereafter, a credit card with a $2,500.00 credit allowance.

Jimmy found that the credit card came in useful for buying clothes, books and just generally having a good time. Jimmy did not have a job and had no idea how he was going to pay for the first bill when it came, which amounted to close to $900.00.

ISSUE: Is Jimmy responsible for these charges?

ANSWER: No. Just recently a credit card law was enacted which made it essential for the credit card companies to change their practices. One of the key changes is that now an individual must be at least 21 years old before he can be given a credit card on his own. Anything younger than that would require a co-signature of a parent or natural guardian to be valid.

In this particular situation, since Jimmy was only 18 years old, the credit card company had violated the law and thus could not hold Jim or his parents responsible for the debt incurred.

Disclaimer: The above article is for instructive purposes only and each case is fact sensitive. Consultation with an attorney should be obtained instead of reliance upon the legal issues discussed in this column.

By Laura Legere (Staff Writer)
Published: August 31, 2010

DIMOCK TWP. – The head of the state’s environmental protection agency made several promises to study and repair negative impacts from natural gas drilling in this Susquehanna County community Monday, including the vow residents with contaminated drinking water most wanted to hear.

The state will push to get a new supply of clean water piped to the homes of 14 Dimock families whose water the Department of Environmental Protection found was damaged by Cabot Oil and Gas Corp. as it drilled for gas in the Marcellus Shale.

The department plans to get an interim answer from the company this week about whether it will agree to the proposal for replacing the residents’ household water, DEP Secretary John Hanger said.

“We will be complete advocates, regardless, for this permanent water solution,” he said at the end of an hourlong meeting with the affected families.

DEP suspended portions of Cabot’s operations in April after it found that 14 of the company’s gas wells in Dimock were improperly constructed or overpressured and were causing methane to seep into residential drinking water wells.

The company was ordered to fix the affected water supplies by May 15, but at least 11 of the 14 families refused Cabot’s proposed solution – methane elimination systems to be installed in each of the homes – saying that the systems do not meet the standard set by law for drillers to “permanently restore or replace” damaged water supplies.

The company was given an extension until Sept. 17 so the department could find a water solution that the families would accept – a consensus Mr. Hanger said was reached Monday.

“Now we go to work to turn that consensus into a reality,” he said.

Cabot has accepted responsibility for fixing the methane problem even though it does not believe it caused it.

The company has said that methane is naturally occurring in Susquehanna County water wells and was present in the Dimock wells long before any drilling began.

Mr. Hanger also committed Monday to send the agency’s mobile air-monitoring unit to Dimock to test the air quality around natural gas compressor stations and storage tanks used to hold the liquids that come up with natural gas during the life of each well.

Before the meeting, he stood on the porch of Ronald and Jean Carter’s mobile home less than 500 feet from a well site and watched the storage tanks hiss and vent periodically.

He also vowed to find out “right away” why two families with complaints about their drinking water who live adjacent to the same gas well have not received temporary water-replacement supplies.

And during a visit to Craig and Julie Sautner’s home – where Cabot installed, then took offline, an elaborate water-treatment system in the basement that failed to work – Mr. Hanger promised to have DEP inspectors test the brown silt and water in the 550-gallon container in the family’s garage that Cabot contractors fill daily to supply the family with water.

He also asked for tests from the family’s disconnected water well after Mr. Sautner shook a milk jug full of the water and stirred up an inch of white suds that lingered on the surface.

“We shouldn’t have to live like this,” Mr. Sautner said. “Enough’s enough.”

Contact the writer: llegere@timesshamrock.com

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Copyright:  The Scranton Times

By RONALD W. HOSIE (Editor of The Review)
Published: August 29, 2010

The good news is it appears likely there will be a severance tax on natural gas extracted from the Marcellus Shale play under Pennsylvania, including Bradford County, arguably the center of the gas industry’s prospecting in the play.

Gov. Ed Rendell and the Democratic and Republican leaderships in the Legislature have agreed, in conjunction with the state budget resolution signed in July, to work out the details of such a tax by Oct. 1 and have it go into effect beginning next January. Rendell favors such a tax helping to balance the state budget; Republicans generally are opposed to such a tax.

Depending on the version enacted, it could raise several hundred million dollars per year in a state where governments are hard-pressed to balance budgets, and the gas boom promises to become the most profound, life-changing economic phenomenon in a century or more.

The bad news is that with the legislature in summer recess until mid-September, no one of influence agrees yet on what the formula for the tax will be, raising the possibility it will become a campaign issue in the upcoming November general election, and subject to all the good and bad such campaigning brings to rational analysis. Gov. Rendell will not seek re-election. Republican candidate Tom Corbett is opposed to the tax and Democrat Dan Onorato, his opponent, favors one.

The ideological contention is unfortunate, to say the least.

The gas companies, even though they stand to reap considerable profit from prospecting the Marcellus Shale, ought not to be treated as cash cows, to be milked whenever government has a need for more tax revenue. Prospecting is an enormously expensive undertaking at considerable financial risk for companies and their investors. On average, it costs $4 million to drill a single well in the Marcellus Shale. In the past two years, 963 wells have been drilled by several companies, and through Aug. 21 this year, 1,067 permits for new wells were issued by the state Department of Environmental Protection.

Gas companies deserve to make a profit commensurate with their risks and investment. In this case, we’re talking really big bucks. What’s more, such success stimulates growth, brings new business jobs and, as a result, additional tax revenue. In a word, the natural gas boom here is expected to generate “prosperity.”

And, in discussing treatment of the gas companies, let’s not forget that some of them, at least, including Chesapeake and Talisman and others active in Bradford County, already have contributed upwards of several hundred thousand dollars for good works by local groups and organizations.

But, making a profit in what Penn State researchers have documented is the huge, gas-rich Marcellus Shale is about as close to a sure thing as prospecting gets. Penn State estimates the Marcellus Shale is worth $500 billion in recoverable gas.

How state and local leaders and others react now, and how effectively they lead the transformation to a new era now, will make a difference in the decades to come in the quality of life in the state and, in particular, the area above the Marcellus Shale, including Bradford County.

The governor has a severance tax proposal, which is just one aspect of an overall state natural gas policy – but an important one – and so do a goodly number of members of the General Assembly. Some two dozen bills to that end had been introduced in the state House or Senate by July, proposing a variety of formulas and schemes to levy such a tax, which has been enacted, in one form or another, in most of the 32 natural-gas producing states. However, many Republicans in the GOP-dominated Pennsylvania Senate have sided with the gas industry and oppose the tax as premature. What’s more, none of the Pennsylvania legislative proposals, so far, duplicate the governor’s plan, which is modeled on the one enacted in neighboring West Virginia.

The Rendell proposal is what’s known as a hybrid tax: It would tax the volume of gas extracted at the well head, and tax the value of the gas at market. In other words, a 5 percent tax at the wellhead, plus 4.7 cents per thousand cubic feet (MCF) extracted, with exemptions for low producing wells, at the front-end and back-end of a well’s life, projected at 20 or more years. While estimates vary, it is expected to generate some $177 million in the first year and grow to $528 million within four years, according to the non-partisan, left-leaning Pennsylvania Budget and Policy Center, which favors the tax.

Here’s the most worrisome point: There is no assurance that any proposal enacted in Pennsylvania will provide enough money to local governments to cover their costs of dealing with the effects, direct and indirect, of the natural gas boom. Gov. Rendell’s proposal would divert 90 percent of the tax to the state’s general fund to help the plug the state’s $280 million budget gap created when the federal government came up short with its subsidy.

However, the governor’s proposal is deficient in key aspects, one of which is the amount of money that would be returned to the local governments.

While the state’s budget shortfall is serious, especially since so much money for bridge and highway repair is needed, among other obligations, The Review cannot support diverting so much (an estimated $159 million the first year) of any gas tax to the general fund.

It is patently unfair, even absurd. To do so would be to deprive local governments of equally needed revenue. Local governments above the Marcellus Shale are entitled to replenish their treasuries with revenue from natural gas extraction that takes place within its jurisdiction, just as surely as the state is entitled to replenish its general fund from the same drilling revenues.

Local governments, including counties, townships and boroughs, face significant expenses for infrastructure repair (roads) and environmental protection (water), among other costs, such as for social services like public health, law enforcement and fire protection made necessary by the additional people here working in the gas industry.

Local governments already are collecting substantial revenue – as well as already incurring expenses – from, for example, such sources as fees to record gas-prospecting documents at the courthouse, and the sale of water needed in the drilling process. But it is not enough money to deal with both current expenses and a variety of costs for dealing with industry impacts expected in the future. That’s because while drilling will continue for years, wells gradually will dry up and tax revenue will taper off, yet demand for government services to deal with the continuing impacts of the industry will remain high.

Furthermore, counties cannot collect property tax from the drillers. The Pennsylvania Supreme Court ruled in 2002 that oil and gas interests, unlike in Texas, for example, were not subject to property taxes, depriving county government and schools of another source of revenue at a time when school finance is a critical issue.

So, what’s fair?

Bradford County officials are not unanimous. The split generally is along political and ideological lines. At the county level here, for example, Commissioner Doug McLinko, a Republican, does not favor a severance tax. Growth will stimulate the economy, he maintains. But, should such a tax be enacted, he has said – no doubt with an eye on the political reality – a significant portion ought to be returned to local governments.

Commissioner John Sullivan, himself a Democrat, has told people a more reasonable amount of any severance tax revenue to be diverted locally would be 25 percent, which obviously still leaves the lion’s share going to the general fund.

That’s generally high, compared with what other states pay and other proposals in the state legislature.

Nevertheless, we agree with Mr. Sullivan that the rate must be higher than the governor proposes, but exactly how much ought to be based on an accounting of actual local expenses, as well as a sound projection of what local expenses are likely to be in the years ahead, especially toward the end of the life of a well when production is low as will be tax revenue. The Marcellus Shale Coalition, a pro gas industry group, advocates something similar.

Bills pending in the legislature vary as to the amount of the severance tax as well as how much money goes where. The splits generally are along party and ideological lines, but Democrats also are divided amongst themselves.

Democrats are split on how much of the severance tax should go to local governments and how much to state funds.

“This is an anti-growth tax, it’s an anti-jobs tax, it’s an anti-manufacturing tax,” House Republican Minority Whip Mike Turzai said at one point. “And it is an anti-energy-independence tax.”

The gas industry maintains that gas should not be heavily taxed until gas companies can recover reasonable start-up costs, generally at least through the first three years. In general, we do not disagree. But, what is reasonable? The gas industry, citing Pennsylvania corporate income tax of 9.99 percent, wants tax breaks on gas extracted at the beginning of a well’s life, when the volume is high, as well as at the end, when it is low.

What the gas industry does not mention, however, is that most drillers do not pay the corporate tax, which, admittedly, is the highest in the nation. Most gas companies are organized as Limited Liability Companies (LLC) which are taxed at the rate of 3.7 percent, the same as an individual’s flat income tax. That would exempt nearly 71 percent of Marcellus Shale drillers from the Pennsylvania corporate income tax, according to a number of studies.

Many legislators in the Democratic-controlled Pennsylvania House favor a severance tax. Those include Rep. Camille “Bud” George, or Rep. David Levdansky, for example, co-sponsors, at one point, of leading gas tax bills, who do not agree with the industry and pro-gas industry organizations such as the conservative Commonwealth Foundation that an exemption in the early years of well-production is needed to recoup costs and make Pennsylvania competitive with other states.

Adding to the debate that the drillers do not pay property taxes, such economics put local governments, the ones that depend largely on property tax to operate, at a potentially devastating financial disadvantage.

Therefore, at this point, what is clear in this tangle is that Bradford County residents and elected officials must urge the county’s elected state representatives: Reps. Tina Pickett and Matt Baker, and Sen. Gene Yaw, all Republicans, to rise above ideological constraints and vigorously support a natural gas industry tax structure that recognizes the need for a significant portion of natural gas industry tax revenue to be returned to local governments.

At the same time, they and other opinion leaders must assume a leadership position in the debate to focus us on what Penn State Cooperative Extension said in an insightful report, including:

“The vast economic and social impacts related to exploration of the Marcellus shale deposit call for new thinking. Sound, innovative, continuous comprehensive planning is needed for Pennsylvania municipalities to maximize the long-term benefits from Marcellus shale development while minimizing potential negative impacts.

“Gas drilling brings many new factors to communities that have not been experienced previously in many areas of Pennsylvania. Exploration of the Marcellus shale will generate large amounts of money from the leasing of land, construction, trucking, commerce, and housing development.

“Some residents will have more money to spend, but will they spend it in the community and region? Will they take that capital somewhere else if there are no places for them to spend their money locally? New opportunities for business development should increase with gas drilling, which will require infrastructure investments in roads, water, and sewer facilities.

“Housing needs for gas and related workers will increase. Will their needs be met with a temporary variety of housing or is the plan to build long-term residential areas that will be attractive to gas industry workers and their families? There will also be new services, public safety, and other expenses imposed on local governments that may not be consistent with tax revenues derived from natural gas drilling or leasing activities.

“To address these complex issues, the comprehensive planning undertaken by municipalities and counties should have four components:

“1. Taxation and municipal finance: a component to examine tax revenues and expenditures related to gas exploration and project future financial resources needed for municipal and county operations, and school districts in the region.

“2. Public investment: for examining and developing a plan on how municipalities, counties, and school districts can use their assets and facilities to generate revenues from drilling, transmission, water, and wastewater activities related to gas exploration.

“3. Comprehensive land use: a plan to incorporate natural gas development as a new and distinctive land use and provide for economic development, new commercial and residential activity, and improvements to the local transportation system.

“4. Municipal management: a component of planning to provide personnel that will keep track of mining activities, carry out inspections, anticipate production changes, and encourage workforce development to supply skilled workers. Since gas exploration is regional in scope, the management process needs to be carried out jointly by affected municipalities, counties, and school districts, as well as the private sector.”

Change is in the works. It’s time to take charge of our destiny. Who will emerge as the leaders of this new era?

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Copyright:  The Daily Review