Posts Tagged ‘natural gas’

Saying plan likely will be revived in 2010, Rendell adds that he wants industry to get off to a good start.

AMY WORDEN and MARIO F. CATTABIANI The Philadelphia Inquirer

HARRISBURG – Gov. Rendell said Monday after meeting with industry officials that he would agree to delay his push to impose a tax on natural gas extracted from the Marcellus Shale.

“It won’t be in the mix this year,” he said, adding that he would likely revive the proposal next year. “We felt we should let the industry get off to a good start, and that surpasses our need for money.”

For months, Rendell had lobbied for the tax on the gas-rich Marcellus Shale reserve. At one point, the administration estimated it could produce $100 million in revenue in the first year.

But the Democratic governor said on Monday that he reconsidered the idea after watching natural gas prices plummet to near-record lows and meeting with industry representatives who have invested millions to explore the natural gas reserve hundreds of feet beneath the ground.

The Marcellus Shale is a vein of rock containing vast reserves, running hundreds of feet below ground from New York to Virginia. Its exploration and extraction – estimated to be worth billions – has been made possible in recent years by advances in technology.

Senate Majority Leader Dominic Pileggi, R- Delaware County, said it was no surprise that Rendell had abandoned the effort, noting that taxing an industry in its infancy was an unpopular move even among some members of Rendell’s own party.

“The governor has recognized the realities of the situation,” Pileggi said.

Although Rendell said he was no longer interested in the tax this year, Democrats who control the state House said it remained among the mix of possible revenue sources.

“It is definitely not off the table,” said Johnna A. Pro, press secretary to House Appropriations Chairman Dwight Evans, D-Philadelphia.

Other so-called niche taxes still on the table include higher cigarette taxes and a new levy on smokeless tobacco. Also under consideration is the elimination of a slew of long-standing sales-tax exemptions on such items as candy and gum, land-based phones, and basic cable. Rendell has said the removal of exemptions on all items except food and clothing and certain services could generate $1 billion.

Copyright: Times Leader

Some landowners holding back, banking on economic improvement to bring better offers from drillers.

By Rory Sweeneyrsweeney@timesleader.com
Staff Writer

The offer is somewhat unconventional, but a natural gas company that’s leasing land in Luzerne County says its deal is a successful compromise for both parties, and leaseholders agree.

Denver-based WhitMar has locked up more than 22,000 acres in, among other places, Fairmount, Ross, Lake, Lehman, Union, Hunlock, Huntington and Dallas townships, according to company representative Brad Shepard.

The company is offering an unusual deal that has garnered both accolades from landowners for navigating the money squeeze caused by the recession and criticism for its lack of a long-term commitment. WhitMar, which Shepard said is involved in similarly complicated and expensive drilling operations in Oklahoma, Arkansas, Louisiana, Utah and the Dakotas, is offering a four-phase lease.

Landowners receive $12.50 per acre for the first year, after which the company decides whether it will continue the lease for a second year at the same payment rate. The lease also requires that within the first year the company begin the permit process for drilling at least one well and within the second year begin drilling at least one well.

For the third year, the company will offer a $2,500-per-acre, five-year lease on the properties it wants to keep, and landowners whose land gets drilled also will receive 19.5-percent royalties. Conservation Services, the company that amassed most of the territory, receives .5 percent of the royalties.

“As far as I know, that’s the highest royalty that’s been signed in Pennsylvania or New York,” Shepard said. “The reason we offered that royalty is literally because the landowners were willing to let us come in and test it up for $12.50” per acre.

The company then retains an option for a second five-year, $2,500-per-acre lease. “All together, it could be a 12-year lease,” Shepard said, but noted that the leases dissolve if the landowners aren’t paid. “So if they don’t receive a $2,500 payment or a $12.50 payment, the lease has expired because we didn’t pay them like we said we would.”

The offer has aroused reactions on both sides among affected landowners. Some urge restraint, predicting that better offers will crop up when the economy rebounds. “Right now, (gas companies) are picking all this low-hanging fruit,” said Ken Long, an executive committee member of the South West Ross Township Property Group that declined to recommend WhitMar’s offer to their group. “People are panicking to sign leases … because they want to get this monkey off their back.”

Landowners who signed leases note the generous royalties and the commitment to quickly begin exploration drilling. “I firmly believe that a sweeter, more lucrative deal can not be found in Luzerne County,” leaseholder Michael Giamber noted in an e-mail. “By comparison, the folks in Dimock (a truly proven area) can only get 18 percent. Over 30 years, a 2-percent difference in royalties can literally add millions of dollars in a landowner’s pocket.”

Shepard added that forced drilling likely means additional drilling will occur. “For the most part, once the drill rig’s brought in, it’s not brought in to drill one well,” he said. “As long as they hit, we have every intention of drilling as quickly as we can and our partner wants us.”

The company is still working out important specifics, though. First, it needs to find a larger partner to help drill, Shepard said, and it also must secure the rights to millions of gallons of water for the process that cracks the underground shale and releases gas.

In nearby counties, the company is working with Houston-based Carrizo Oil & Gas, Fort Worth-based XTO Energy, Inc., Louisiana-based Stone Energy Corp. and others, Shepard said.

He added that the company has received many offers from landowners to sell surface water on their properties, but said the company is not yet at the stage where it’s investigating water-acquisition options.

Rory Sweeney, a Times Leader staff writer, may be reached at 970-7418.

Copyright: Times Leader

Company files documents to drill in Luzerne County, has leased 17,500 acres.

By Jennifer Learn-Andesjandes@timesleader.com
Luzerne County Reporter

Natural gas drilling may be about to boom in Luzerne County.

Denver-based WhitMar Exploration Co. recently submitted 200 lease documents to ensure that they have the correct property identification numbers, or PINS. Pin certification is required before the leases are officially recorded in the county recorder of deeds office.

The documents show the company has acquired drilling rights on 5,440 acres in Harveys Lake and the following townships: Ross, Lake, Lehman, Fairmount, Union, Huntington and Jackson.

WhitMar representative Brad Shepard said the company has leased 17,500 acres in Luzerne County to date, with more planned. Shepard said he was too busy with planning meetings Tuesday to explain how the drilling will be executed.

Beth Chocallo, a Lake Township property owner who agreed to lease her 3.29 acres to WhitMar, said she and her husband, Richard, were connected to WhitMar through a seminar.

The couple did not receive any upfront payment, she said. Instead, WhitMar will pay a lease rental after the first year or two and a percentage of the profits if natural gas is extracted, Chocallo said.

Chocallo she is optimistic that gas will be found because she doesn’t believe WhitMar would invest in the time and expense of preparing leases without a strong likelihood.

“Who knows where the gas pockets will be found? It’s not a definite,” she said.

WhitMar plans to grid out territories, paying a profit percentage to the owners of all leased property within that grid if gas is extracted, Chocallo said.

She does not believe a drilling rig will be installed on her property because the parcel is on the smaller side compared to others being leased, but she can’t rule out the possibility. Her main concern was that drilling would cut off or diminish her water supply, but she said WhitMar assured her that the company would replace the well and furnish water if that happens.

The lease documents filed in the county do not contain any details about what will be paid to the property owners.

Property owners are leasing WhitMar the exclusive right to explore for and develop oil and gas, the documents say.

That right includes use of the property for the drilling of oil and gas wells and installation of roads, pipes, pumps, compressors, separators, tanks, power stations and any other necessary equipment, the documents say.

Most, if not all, of the leases are for one year, with the option to extend for an additional 11 years or longer.

Of the 200 leases, Fairmount Township had the most property signed with WhitMar – 2,512 acres – followed by Ross Township with 1,205 acres.

Here’s a breakdown of the other leased acreages: Harveys Lake, 58; Jackson Township, 99; Union Township, 102; Huntington Township, 361; Lake Township, 463; and Lehman Township, 640.

Founded in 1979, WhitMar is a private energy operation actively engaged in drilling and developing natural gas and oil prospects in the United States, according to the company’s Web site.

Jennifer Learn-Andes, a Times Leader staff writer, may be reached at 831-7333.

Copyright: Times Leader

The Associated Press

HARRISBURG — Republicans in Pennsylvania’s House of Representatives are proposing a plan to expand natural gas drilling on 390,000 additional acres of state forest land.

The Republicans proposed the plan Tuesday as an alternative to Democratic Gov. Ed Rendell’s plan to impose a severance tax on natural gas production.

Drilling is a major issue in Pennsylvania since exploration companies are eager to tap the natural gas trapped in the Marcellus Shale rock formation.

Republicans say the leasing under their plan would take place over the next three years and provide $260 million per year.

Rendell expects his 5 percent tax on gas production to provide $236 million to the state budget in its first full year.

The state raised $190 million last year by leasing 74,000 acres of state forest to drilling companies.

Copyright: Times Leader

Firm accused of causing gas infiltration, but it’s unclear if rules knowingly violated.

By Rory Sweeneyrsweeney@timesleader.com
Staff Writer

Cabot Oil & Gas Corp. caused natural gas to infiltrate into at least nine homes in Susquehanna County, according a letter of violation from the state Department of Environmental Protection, but it remains unclear whether Cabot knowingly violated any regulations.

“The more important part of the investigation is still ahead of us,” DEP spokesman Mark Carmon said. “We know where it came from. The two more important things are how did it get there … and more importantly, how do we get it out of the wells.”

The company, however, is not confident in DEP’s findings, according to spokesman Ken Komoroski, believing the letter is “unnecessary” and claims as fact conclusions that haven’t been proven.

The situation has become an example of a statewide issue regarding the unknown consequences of gas drilling. Water contamination concerns have caused environmental agencies, including DEP and the Susquehanna River Basic Commission, to increase their regulation and oversight, hindering drillers’ efforts to secure permits quickly.

The letter cites Cabot for an “unpermitted discharge of natural gas” into state waters, for failure to prevent the discharge and failure to submit certain records on time. Though no financial punishment has been levied, Cabot was told to install gas detectors in nine homes where methane was detected in water wells and to continue providing water to four of those where there’s a safety threat from gas buildup, Carmon said.

“It’s disappointing to have a letter which is, at best, premature directed to the company that it violated environmental standards when that conclusion hasn’t been reached yet,” Komoroski said. “We’re hopeful, and I stress hopeful, that our hydrogeologist will actually be able to determine what caused the natural gas to be in the water. We don’t know that we’ll be able to do that.”

Cabot hit a bump on Jan. 1 in its exploration for natural gas in the Marcellus Shale when the cap exploded off a private water well near one of the company’s drilling sites.

While drilling hasn’t come to Luzerne County yet, companies have expressed interest in properties along its northern border. Fairmount Township Supervisor David Keller said several properties have been leased for years, and hundreds of acres, including his 90, were scheduled to be leased before the economic recession hit the industry. “The economy fell apart before they got the money to us,” he said.

The company and DEP agree that the gas isn’t from Marcellus Shale, a pipeline leak or naturally occurring sources above ground. They also concur that the gas is likely from a gas-laden upper layer of underground Devonian shale, of which the Marcellus Shale is a component but thousands of feet deeper, Carmon said. Marcellus Shale is generally at least 5,000 feet underground, while DEP determined the gas contaminating the water wells came from a shale layer roughly between 1,500 feet and 2,000 feet deep, Carmon said.

The company has cemented the upper Devonian shale layers of several wells, effectively extending the cement seals from the bottom of the water-bearing region, where the seals usually stop, to the bottom of the upper shale layers. The department has been trying to isolate the exact source of gas, seeing whether the extended seals produce a drop in water-contamination levels, Carmon said.

Because the method of contamination hasn’t been determined, Carmon said it’s too early to tell if Cabot knowingly violated regulations. “I’m not aware of anything blatant or anything like that, but, again, we want to know how did it happen,” he said.

Komoroski said the company is concerned about the effect the letter will have on its public image, particularly since it questions many of the department’s conclusions. It believes it filed all drilling reports on time, and that the gas detectors aren’t necessary. In fact, Komoroski said, the product DEP suggested Cabot buy wasn’t even a gas detector.

Cabot plans to meet DEP’s deadline for a response and is also scheduling an in-person meeting, as requested.

Copyright: Times Leader

Bill, 2 Supreme Court decisions could alter how operations are taxed, located.

By Rory Sweeneyrsweeney@timesleader.com
Staff Writer

Three recent state-level actions – a legislative bill and two state Supreme Court decisions – could affect how natural gas wells are sited and taxed. Earlier this week, state Rep. Bill DeWeese, D-Greene County, proposed a bill to tax underground gas deposits by adding their assessed values to property taxes. The driller would pay, and the tax revenue would, for the first year, be used to reduce the municipality’s millage to equal the previous year’s tax revenue. The millage – a dollar tax on every $1,000 of assessed property value – could be increased in subsequent years.

“If a municipality needs the same amount of money as last year, then yes, the millage would go down. But, the reality is they’re probably going to keep ours the same and get more money from them (the drillers),” said Marianne Rexer, a business professor at Wilkes University.

The bill is in response to a 2002 state Supreme Court decision that no law exists to tax natural gas, as there does to tax coal and other minerals.

Stephen Rhoads, president of the Pennsylvania Oil and Gas Association, said the tax wasn’t utilized by many counties before, and “it is a false hope that this is going to bring a revenue stream to counties and school districts any time soon.”

The state Supreme Court ruled in February on two western Pennsylvania cases regarding municipalities’ rights to restrict drilling.

In one case, the court found municipalities can’t control where drilling infrastructure is permitted, as that would interfere with regulations already promulgated in the state Oil and Gas Act.

But they can indicate in which zoning districts drilling may be allowed “in recognition of the unique expertise of municipal governing bodies to designate where different uses should be permitted in a manner that accounts for the community’s development objectives,” the court’s opinion states in the other case.

The ruling might not have much effect in the Northeastern Pennsylvania municipalities of interest to drillers. Many don’t have zoning ordinances, and others, such as Fairmount Township in northwest Luzerne County, want less restrictive ones.

Several landowners have sought drilling leases, township Supervisor David Keller said, and he has no interest in restricting their options. The township now yields to the county’s Planning and Zoning office, but Keller said the township is looking into writing its own zoning ordinance because “it would give us more leeway to let people do more with their property as they see fit.”

Copyright: Times Leader

State is not seeing the same reduction in Marcellus Shale drilling as other areas.

By Rory Sweeneyrsweeney@timesleader.com
Staff Writer

SCRANTON – The price of natural gas has dropped nearly to levels that make drilling in the Marcellus Shale unprofitable, according to a Penn State educator, but drillers have been hedging their prices and the Northeast is still the best-paying gas market.

Freefalling from a high in 2008 of around $14 per thousand cubic feet, prices are currently around $4 per thousand cubic feet, hovering just above the $3.75 threshold that companies believe makes Marcellus Shale drilling unprofitable, said Tom Murphy, an educator with the Lycoming County Penn State Cooperative Extension. He spoke on Tuesday at a public-education meeting sponsored by the Lackawanna Heritage Valley Authority at the Steamtown National Historic Site.

But many companies hedged their gas sales months ago at around $9 per thousand cubic feet, he said, and because much of the Northeast uses natural gas for home heating, Pennsylvania isn’t seeing the same reduction in drilling rigs as other shale drilling areas.

“The proximity of that (the Marcellus Shale) is what a lot of this is about,” Murphy said. “They are leasing right now, but they’re leasing for a lot less than they were before. … It’s not a matter of is this coming. It’s a matter of how big is this going to be.”

Companies are mostly leasing strategically to fill in holes in drilling units while slowing production to reduce supply and increase prices, he said. But the usual three-month to six-month falloff between reduced production and reduced supply isn’t occurring. “There’s so much gas coming out of these shales, and the Marcellus Shale is one of those, that the lag time is nine to 12 months,” Murphy said.

Still, the “weakest link” in the industry is dealing with contaminated wastewater, he said. While there are eight deep-injection wells in the state, only one is available for industry use, and it’s in the southwestern part of the state.

The vast majority of the water is being treated at municipal sewage facilities. There, the heavy metals are removed, and the brine is simply diluted and dumped into waterways in the Susquehanna River watershed.

“It’s actually starting to get to the point where it’s starting to exceed what can be put in” the watershed, Murphy said.

Another water issue is managing pollution at the drilling site, said Jim Garner, the Susquehanna Conservation District manager. “They talk about restoration; they like to do restoration,” he said, displaying a photograph of sediment fencing at a site that had been compromised by runoff. “In practice, it’s a different situation. … We’ve only seen several sites fully restored. It can be pretty challenging.”

As the drilling ramps up, hundreds of trucks will be driving over Susquehanna County’s many dirt roads, he said. The unstable roads combined with the county’s many waterways create 2,712 potential pollution sites, he said. “In a few weeks, it’s really going to be interesting to see how these roads don’t hold up,” he said.

Garner’s district has approved only one erosion and sedimentation plan and just two others have been submitted, he said. All the activity and unresolved concerns have created a swirl of public speculation, he said. “I’ve been with the district 15 years. I have never heard anything create rumors like this.”

Rory Sweeney, a Times Leader staff writer, may be reached at 970-7418.

Copyright: Times Leader

Harveys Lake officials cite environmental concerns in opposing the water use.

EILEEN GODIN Times Leader Correspondent

HARVEYS LAKE – Council members on Tuesday night voiced concerns over a gas company’s interest in using lake water for the drilling of the Marcellus Shale.

Environmental scientists from Gannett Fleming Engineering are interested in drilling in the Marcellus Shale region, which runs through Northeastern Pennsylvania. The shale contains pockets of natural gas.

The gas company wants to use 20 million gallons of water from Harveys Lake for a process called hydrofracing. Hydrofracing is the use of high pressure water to create cracks in the rock surrounding the shale so that the gas can be recovered.

Council Chairman Lawrence Lucarino said the shale is located a mile or more below the earth’s surface.

Council members say they oppose the practice because they are trying to protect the state’s largest natural lake.

But even though the council can deny it the use of the water, “the federal government can override the council’s decision,” Councilwoman Diane Dwyer said.

The council has asked attorney Charles D. McCormick to draft a letter stating the borough’s position and reasons against using the lake water.

“Who knows how well they will filter out the contaminants before letting the water back into the lake,” Dwyer said.

She asked residents to “please be watchdogs and keep an eye on your backyard.”

The Marcellus Shale fields are located in the Appalachian Basin, running through Pennsylvania, New York, Ohio and West Virginia. According to the Web site oilshalegas.com, the Appalachian Basin could provide 50 trillion cubic feet of natural gas for the United States. The United States now produces 30 trillion cubic feet of natural gas.

In other news, emergency 911 street maps have been returned to the borough. Council members Carole Samson and Charles Musial will review the maps to make sure all the street names are correct.

This process should take about one to two weeks, Samson said. Once approved by the borough, the maps will be sent to the County 911 office for final approval.

Copyright: Times Leader

Gas industry officials told state senators in Dallas that cumbersome rules make it difficult to operate.

MICHAEL RUBINKAM Associated Press Writer

DALLAS — Executives of drilling companies exploring a huge untapped reserve of natural gas say the economic windfall expected from the Marcellus Shale may not come to pass if Pennsylvania doesn’t get its regulatory house in order.

Industry officials complained Tuesday about a time-consuming and lengthy permitting process and cumbersome regulations that, on top of plummeting natural gas prices and the credit crisis, is making it difficult for them to operate in Pennsylvania.

“I have great hopes for what the Marcellus Shale play might still hold for Pennsylvania. Unfortunately, my experience to date does not lead me to be very optimistic,” Wendy Straatman, president of Exco-North Coast Energy Inc., told Republican state senators at a hearing in northeastern Pennsylvania.

She said the Akron, Ohio-based company has moved drilling equipment to West Virginia and delayed its plan to transfer a “significant number” of employees into Pennsylvania because of DEP permitting delays that are “unlike anything we have seen in any other state in which we operate.”

Another executive, Scott Rotruck of Oklahoma City-based Chesapeake Energy Corp., the largest natural gas producer in the United States, predicted “ominous” consequences for Marcellus development if Pennsylvania’s regulatory environment doesn’t become more welcoming. He said the permitting process is easier and less costly in other states.

Sympathetic GOP senators pressed acting Environmental Secretary John Hanger for answers, warning that Pennsylvania can’t afford to scare off an industry that has promised to create tens of thousands of new jobs.

The state needs to be “careful we are not killing the goose that’s laying the golden egg,” said Sen. Mary Jo White, R-Venango.

Hanger agreed that regulations need to be streamlined and said his agency is working on it, but added that most applications are processed within 45 days.

“There has to be a smart way to protect what we need to protect, and at the same time (prevent) a delay that really serves no purpose,” he said. “I believe there’s a learning curve here for everyone involved.”

Part of the problem may be a lack of DEP manpower to cope with a record number of natural gas applications. The agency is on track to issue 8,000 permits in 2008, up from 2,000 in 1999, yet staffing in the agency’s oil and gas division has remained stable at about 80. The DEP has proposed to raise fees on drilling companies to pay for additional staff to process applications and inspect wells.

Tuesday’s hearing at Misericordia University was called by the Senate Majority Policy Committee to explore the economic and environmental impact of drilling in the Marcellus, a layer of rock deep underground that experts say holds vast stores of largely untapped natural gas.

Industry executives also opposed a tax on natural gas that the administration of Gov. Ed Rendell has said it is considering.

“New taxes will stymie Marcellus development,” said Ray Walker Jr., vice president of Range Resources Corp., a Texas-based oil and gas company with an office in southwestern Pennsylvania.

Copyright: Times Leader

Senate hearing set for today at Misericordia, symposium Wednesday at Woodlands.

While landowners are imagining the gobs of cash they stand to make from natural-gas drilling in the Marcellus Shale rock layer underlying much of the region, Don Young hopes there’s room to imagine a few other images, such as gas pipelines crisscrossing once-pristine farmland, benzene contaminating groundwater supplies and an industrywide press to tap every inch of lucrative ground.

And that doesn’t include the Fort Worth, Texas, resident’s concerns about the psychological effects of celebrity-fronted publicity campaigns linking the drilling to patriotism and national security. “It’s Orwellian to see it happening here,” he said. “You’ve got American flags on each well.”

But the leader of Fort Worth Citizens Against Neighborhood Drilling Ordinance hopes the travails that now plague his home above the Barnett Shale are averted in the similar Marcellus Shale. “What you have here in Fort Worth on a grand scale is apathy. People felt, ‘We can’t stop it. It’s too big. It’s big oil,’ ” he explained. “The average busy person, they don’t have time to worry about gas drilling. … They have families, they have lives, they’re struggling, and if you have a few companies handing out money saying, ‘Here’s some money, just forget about it,’ ” they’ll do just that, he said.

Local regulators and educators are already taking steps to avoid those effects, and they’ll take a few more this week. This afternoon, the state Senate Republican’s Policy Committee will meet at Misericordia University to hear testimony from people familiar with dealings in the Barnett Shale on the potential effects awaiting Pennsylvania.

Several of the same speakers will be featured in discussions Wednesday morning at the Woodlands Inn & Resort in Plains Township, as the Joint Urban Studies Center holds a Marcellus Shale Symposium. The public is invited to either presentation, but the symposium has a registration fee.

“We are front and center to the development of this new industry,” said state Sen. Lisa Baker, R-Lehman Township, who requested the hearing. “I think having the hearing here demonstrates, in my judgment, that we’re doing all we can to ensure that our laws and regulations are appropriate and that if we need to make changes,” the legislature is ready to do so.

She said she hopes to get answers to questions she often hears from constituents, including potential downsides to drilling and whether current regulations are enough to curtail them.

According to several of the speakers, Pennsylvania might have a lot of ground to make up before it’s running even with the industry. “I just don’t understand the state’s set-up. Why wouldn’t that be a requirement to disclose how well the wells (are performing)?” asked John Baen, a University of North Texas professor and real-estate expert who has 250 wells on his property in the Barnett Shale. “If it’s all proprietary, then how do we know what the true wealth is?”

Rory Sweeney, a Times Leader staff writer, may be reached at 970-7418.

Copyright: Times Leader