Is PA Gov Wolf Targeting the Marcellus Industry for Extinction?

Daniel Markind
Daniel Markind

Is Pennsylvania Gov. Tom Wolf actually *trying* to kill the Marcellus Shale industry? It’s not our question, but a serious question being asked by Dan Markind, a lawyer and partner with Weir & Partners in Philadelphia. In today’s guest post, Dan recounts Wolf’s actions during his first ten months in office and asks a serious question about what Wolf is trying to do to the Marcellus industry. Actions speak louder than words. [Incidentally, no one else seems to recall, but we do, that California billionaire and environmental activist Tom Steyer gave Wolf something like $14 million for his campaign (see CA Anti-Driller Tom Steyer Purchasing Tom Wolf PA Governorship). Perhaps Wolf is paying off his campaign debt to Steyer by targeting the Marcellus for extinction?]

Dan also updates us on the situation with the Constitution Pipeline–delayed by New York’s Dept. of Environmental Conservation; the Obama Administration’s decision to oppose ending a ban on crude oil exports; and a huge oil find in Israel, or is it really in Syria?…

by Daniel Markind, Esq.
Weir & Partners, LLP

Ten months after he was inaugurated and three months after the deadline for final enactment of a new State budget expired, Pennsylvania Governor Tom Wolf finally unveiled his new tax proposal. The Governor, who campaigned on enacting a 5% mineral extraction tax to fund education in the State, had unofficially floated adding on top of that a fee of $.047/1,000 cubic feet of gas produced at a minimum price of $2.97/Mcf, regardless of the actual sales price. To placate local communities who would lose their guaranteed assessment under the prior local impact fee system, the Governor floated a guaranteed amount to municipalities. When Governor Wolf finally introduced a tax plan, he actually proposed a 3.5% mineral extraction tax plus a fee of $.047/1,000 cubic feet of gas produced with no minimum price but with this tax layered on top of the current local impact fee.

The Governor made his proposal only after Pennsylvania State Legislative leaders promised him an up or down vote on the budget. He got it. He lost. Badly.

The vote yesterday in the Pennsylvania State Assembly was 127-73 against, with all Republicans and 9 Democrats voting against the Governor’s tax plan. This leaves the State back at an impasse, but one in which there clearly is opportunity. In the current low cost environment, the Pennsylvania local impact fee results in an effective tax rate of between 6.5% and 10%. Would it have been wise for the industry to jump on the Governor’s initial proposal of a set rate mineral extraction tax and negotiate over the rate?

Given the Governor’s actions during his ten months in Harrisburg, it is impossible to rule out the concept that he really wants to kill the industry in the State. If however that is not the case now would be the time for some creative thinking on all sides. Without it, what little investment has been taking place in Pennsylvania these last few months will continue to dry up partly due to the legislative uncertainty.

One problem Pennsylvania has is the lack of pipeline infrastructure. As the Marcellus Shale Coalition pointed out yesterday, the national average price for natural gas is $2.56/Mcf. In Pennsylvania the average is $1.05/Mcf. Getting the pipelines constructed to actually move the gas would work for everyone, but it runs afoul of NIMBY’ism and political posturing. For example, the Constitution Pipeline is being constructed from Northeastern Pennsylvania into the Southern Tier of New York State. It will be a 30 inch pipe carrying approximately 650,000 decatherms/day of natural gas, the equivalent of 4.68 million gallons of oil. In New York State it would hook into other pipelines that would help bring gas to New England. Currently, Boston (as well as Philadelphia) imports much of its natural gas, despite being hours away from the most productive natural gas field in the United States. In fact, some of Boston’s natural gas comes from Yemen, among the world’s most unstable countries.

Continuing to rely on natural gas from the Middle East is a bad idea, but for now the Constitution Pipeline cannot get completed. Although the pipeline has been approved by the Federal Energy Regulatory Commission (FERC), the New York Department of Environmental Conservation is refusing to give a “401 Certification” to cross certain streams in Broome County, New York. Legally, FERC approval usually trumps local laws, but in this case the New York DEC is saying that it is enforcing the Federal Clean Streams Act in deciding on the 401 Certification. With winter approaching, one wonders how long New Englanders will continue to accept paying up to eight times more for natural gas from unstable countries shipped in by pollution-emitting ships instead of having the gas piped in from Pennsylvania?

Nationally, the Obama Administration mirrors the Wolf Administration in its incoherence on energy policy. Yesterday, in a formal “Statement of Administration Policy”, the White House’s Office of Management said it would not support a House bill to end the 40-year old ban on crude oil exports. While the matter involves oil exports and not natural gas exports, the underlying principle is the same. “Congress should be focusing its efforts on supporting our transition to a low-carbon economy. It could do this in a variety of measures, including ending the billions of dollars a year in federal subsidies provided to oil companies and instead investing in wind, solar, energy efficient and other clean technologies to meet America’s energy needs.”

Must everything be mutually exclusive? Can we not allow oil exports (and more importantly speed up natural gas exports) to break the hold of Vladimir Putin and his ilk on Europe’s energy needs while simultaneously generating tax revenue and jobs here at home, then use this money to invest in energy technologies of the future? In doing so, we would continue to decrease our carbon dioxide omissions, which continue to drop due to the increased use of natural gas over coal. Perhaps it seems too logical.

In other news here at home, new studies cast doubt on the extent of the oil that will be available in California’s Monterey Shale. The US Geological Survey reported this week that the most productive part of the Monterey holds just 21 million barrels of oil recoverable from tight formations (in addition to 393 million recoverable from conventional methods). This is as opposed to the 14 billion barrels Federal authorities estimated in 2011. Obviously, we are a long way from understanding the true extent of these deposits.

In North Carolina, state lawmakers approved a bill including a provision that would invalidate local ordinances which place conditions on fracking that go beyond those restrictions already set by North Carolina State law. Given the history of Act 13 in Pennsylvania and other states, it will be interesting to see how North Carolina courts would interpret this provision, should it be enacted, in relation to local authority over land use and zoning.

Finally from the Golan Heights on the Israeli, Syrian, Lebanese Border comes the following: Israeli researchers claim to have located a large oil deposit under the Golan Heights. The oil would be enough to easily supply all of Israel’s current needs of 270,000 barrels of oil per day. This latest find follows the discovery of the Zohr natural gas field off of Egypt and the anticipated development of the Leviathan and Tamar fields located between Israel, Lebanon and Cyprus. Houston’s Noble Energy is working with Israel’s Delek on the Leviathan and Tamar development but can’t yet break through the Byzantine process of getting final approvals from the Israeli government. Both companies may help support Egypt with energy development until the Zohr gets going. The Golan Heights were occupied by Israel following the 1967 Six-Day War but by most countries is considered to be part of Syria. Syria doesn’t really exist anymore but is divided up between Bashar Assad’s government forces (now helped by Russian, Iranian and Hezbollah troops), Sunni rebels and ISIS forces, who also all are fighting each other. Hezbollah is a Shiite militia founded, trained and funded by Iran for the purpose of destroying Israel. It possesses significant strength in Southern Lebanon, right next to the Golan Heights where the new oil field was discovered by Israelis. Got all that?

Happy leaf raking.