Marcellus Shale Watch

$3.8 billion in value added, 48,000 jobs and $400 million in state and local tax revenue are the predicted 2009 financial impacts of the Marcellus Shale development in Pennsylvania, according to a study by Professors Considine and Watson of the Dept. of Energy and Mineral Engineering, College of Earth & Mineral Sciences of The Pennsylvania State University.  The study is entitled:  An Emerging Giant: Prospects and Economic Impacts of Developing the Marcellus Shale Natural Gas Play and was released on July 24th.

Among the other findings are:

• Each Marcellus well generates $6.2 million in economic impact
• In 2010 more than 1000 wells are expected to be drilled
• Marcellus producers spent about $3.09 billion in 2008 and most of it was spent in Pennsylvania on supplier and landowner payments
• Development of the Marcellus resource is in the “ramping up” phase.  Drilling nationwide in the first quarter of 2009 was DOWN 21% from last year, while drilling in Pennsylvania appears to be UP 22$ during the first five months of 2009
• Pennsylvania drilling activity has far exceeded West Virginia’s, which the study attributes in part to the low tax climate in Pennsylvania compared to West Virginia, which has a gas severance tax of 5% + 4.7 cents per mcf and a property tax on oil and gas equivalent to about 5% of gas sales.
• Imposition of the presently proposed severance tax in Pennsylvania would result in an 11% decline in IRR, 30% reduction in wells drilled and a reduction of $880 million in tax revenue collected (in present value) between 2009 and 2020.

Click here for a link to the study.

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On May 13th House Bill 1489 was introduced representing the administration’s proposal for a Pennsylvania gas severance tax of 5% of the gross value of gas severed at the wellhead plus 4.7 cents per one thousand cubic feet of gas severed.  The Bill sets forth requirements for monthly payment periods, measurement criteria, metering, registration with the Department of Revenue, application fees, recordkeeping, liens, interest, penalties, bonds to secure payment by nonresident entities, and the adoption of regulations.  You can review the Bill by clicking here.

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The Philadelphia Inquirer reports that the Pennsylvania Senate’s Budget passed last week does not include Governor Rendell’s proposed gas severance tax. The tax has been vigorously opposed by the Pennsylvania Oil & Gas Association and other industry representatives on the basis that it would cripple the strategically and economically vital Marcellus Shale development just as it is getting started, and in a low-price environment as well.  Governor Rendell’s  office reports that a compromise tax proposal is being discussed.  For more information you can access the article by clicking here.

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The Pa House GOP has endorsed the industry counter to the Governor’s proposed tax;, to wit, that the state lease land and raise the same money, or more, by gas production than it could raise by a severance tax.   The proposal is to lease 130,000 acres of land in each of the next three years out of the about 2.1 million acres of forest under the control of the DCNR.  This position has been advanced by the Pennsylvania Oil & Gas Association and was the subject of an entertaining dialogue between POGA Director Steven Rhoads and Acting Secretary John Hanger on Tuesday night at the POGA conference on environmental issues.

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