Warning Signs For The World’s Top Shale Play

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A lot of activity the past few days in Pennsylvania: home of the Marcellus shale, arguably the world’s best-performing unconventional natural gas and liquids play right now.

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And it looks like things could get more complicated for drillers here going forward.

Partly on the financial front. With a special committee of the Pennsylvania House passing a bill Wednesday to impose a new tax on natgas production in the state.

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Under the legislation, producers would be charged 2 cents tax on every mcf of gas produced — when prices are below $3/mcf. With that rate escalating to as much as 3.5 cents per mcf if the gas price exceeds $5.99/mcf.

The bill comes after much debate about a new shale tax aimed at Marcellus production. And the proposed rates were significantly reduced during discussions amongst legislators drafting the new rules.

Still the new bill would impose a notable jump in costs for Marcellus drillers. And its passing is expected to be controversial — with a final vote expected as early as next week.

At the same time, another measure being considered in Pennsylvania could have a greater effect on shale production: new and tougher rules on fracking operations in the state.

Such stricter measures had been implemented by Pennsylvania environmental regulators late in 2016. But were immediately challenged by shale producers, who convinced a state judge to grant a temporary injunction against the new rules.

But the Pennsylvania Department of Environmental Protection struck back this week. Going before state judges to argue that the rules should be immediately reinstated.

The regulatory agency says it should be relied upon as expert, and given the benefit of the doubt in letting the tougher frack rules stand. And if judges agree, we could see Marcellus drillers saddled with more expensive and time-consuming permitting for drilling.

Watch for a ruling in the case over the coming several weeks, and for final passing (or not) of the new severance tax sooner than that. Both these happenings could have a material effect on production from America’s top natgas play.

Here’s to making the rules,

Dave Forest

Article by Pierce Points

Updated on

Dave Forest writes Pierce Points Free Daily E-Letter, an advisory on mining and energy read every day by BP, Rio Tinto, JPMorgan, BNP Paribas, Repsol, GDF Suez, GE, Platts, Warburg Pincus, and the UN. Sign up for free at www.piercepoints.com. Mr. Forest has funded and managed over $80 million in global exploration and development in natural resources, and continues to design and develop projects globally. He is a professional geologist.
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