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February 23, 2015
by David Conti


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Looking for greener grass

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Some New York town leaders feeling stung by their governor’s ban on fracking for gas are eying what they consider greener pastures south of the border.

As WBNG-TV in Binghamton reported last week, the Upstate New York Towns Association is researching what it would take for interested communities to secede from the frack-free Empire State to join Pennsylvania, where gas drillers recently finished yet another record year of production.

Jim Finch, supervisor in the Southern Tier town of Conklin, told the station the chronically depressed area could tap riches in the shale deep below, but Gov. Andrew Cuomo won’t allow it.

“Right now, we are being deprived of work, jobs and incomes,” he said.

At least 15 unnamed towns are on board, the association said. They’ll just have to convince New York lawmakers, their counterparts in Harrisburg, and a federal government that hasn’t looked kindly on the word “secession” over the past 150 years.

Cuomo’s attitude toward natural gas development and the state’s fiscal policies make the idea worth pursuing, though, one proponent told the station.

“The tax structure in New York is just horrible to do business in,” said John Gage, owner of the Reliable Market in Conklin.

A conversation with Pennsylvania gas industry leaders might show these towns’ folk that the grass on this side of the border isn’t necessarily, well, you know… Gov. Tom Wolf this month proposed new taxes on gas production and invoked the New York ban as an alternative to his plan, though he said that was not threat.

Still, Lou D’Amico, head of the Pennsylvania Independent Oil and Gas Association, called Wolf’s comments “tantamount to extortion.” Driller Huntley & Huntley last week told officials in Harmar it was re-evaluating its leasing plans based on the tax proposal and what it considers a ban threat from Wolf.

Low gas and oil prices, meanwhile, have producers dialing back on spending and telling communities they won’t be drilling there anytime soon.

Towns eager to secede to Pennsylvania might want to consider whether they would really succeed in getting wells drilled in their pastures.

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February 9, 2015
by David Conti


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How long?

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“How long?” has become a common refrain in the Marcellus shale.

Initially some wondered how long the drilling would last as skeptics called the first estimates of natural gas trapped in the shale too high. Turns out, they were way too low, based on the trillions of cubic feet in reserves several shale producers announced last week.

“Several decades” seems the most appropriate answer.

When townships and boroughs started collecting impact fee money from wells, some local leaders stashed it in savings accounts because, they wondered, “How long until Harrisburg diverts it somewhere else?”

Gov. Tom Wolf’s campaign promise to institute a severance tax for education funding provides the answer to that.

The big question today is: “How long will these low prices last?”

The benchmark price for gas fell by a third since November to its lowest level since 2012, the last time producers pondered this question.

It is a cyclical business.

The answer then was “about a year.” The answer now is a topic of debate among analysts and concern in the industry.

“In my opinion, it is too early in the cycle for us to know how this will play out,” EQT Corp. CEO David Porges said last week in discussing the Downtown producer’s decision to pare its previously announced capital spending plan by nearly 20 percent because of the low prices.

Other companies’ cuts in spending on gas well development from last year’s levels range from 23 percent at Consol Energy to Range Resources’ 43 percent. Yet both of those companies promise to continue growing production by 20 percent or more annually.

How long can they do that? For at least a year or two, experts say.

“Despite the reduction in drilling activity, it’s very important to highlight that drilling efficiencies allow more production with fewer rigs,” Luke Jackson, an analyst at Bentek Energy, said in a presentation last week on gas prices.

That means drilling more and better wells at each pad, and providing higher numbers when someone asks, “How long is the lateral length on that well?”

It means answering the question, “How long are you going to leave that well unfinished?” Jackson and fellow analyst Thad Walker estimated Marcellus producers have drilled at least 1,500 wells that have not been completed or brought online.

Still, turning on those taps will just add supply to the glut that’s causing the low prices. How long will it take to get more pipelines in place to carry all this gas away? How long until utilities start burning more gas to generate electricity, increasing demand enough to level the prices?

“The summer of 2015 is the bottom,” Jackson said. “As coal plants are retired, you start to have that structural shift to more gas burn.”

It might be a long spring in the Marcellus.

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February 4, 2015
by David Conti


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Better news for steel

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Steelmakers have been among those most hurt by the crash in oil and natural gas prices.

Less money for the commodities has meant less drilling, so less need for all those layers of pipe and casings shale producers put in their wells.

The softening market prompted U.S. Steel to lay off 750 workers at plants in Ohio and Texas that make piping, and it put another 2,000 workers on notice in Alabama and Texas. TMK IPSCO said this week it would cut 10 percent of its workers at two Beaver County plants that make downhole pipes.

Luckily for the steel industry, midstream companies are still building pipelines to move gas to market.

The group that wants to build the massive Atlantic Coast pipeline to North Carolina today gave steel its best news in weeks.

Dominion and the other companies behind the planned 550-mile line picked Pennsylvania-based Dura-Bond to make the pipe. Dura-Bond said it will hire 150 workers to do just that at its Steelton plant outside Harrisburg.

Given the layoffs in this area, Dura-Bond should have no problem finding experienced workers for the job.

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February 3, 2015
by David Conti


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Pulling permits

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We’re starting to see some early effects of a slowdown in gas drilling in Washington County.

Range Resources, which cut the amount of money it intends to spend on drilling this year by 43 percent, told officials in Mt. Pleasant that it won’t develop three new well pads for which it sought conditional use zoning permits.

In a letter to township officials, Range, the state’s most prolific shale driller, blamed the “deterioration of the commodities markets” for its decision. Despite a gain on Tuesday, the national benchmark price for gas is down 30 percent since November, and the going price in Appalachia is even lower.

Hence the 43 percent cut in capital spending by Range, a similar reduction by Rex Energy, a 23 percent drop coming from Consol Energy and Chevron’s decision to cut 162 workers in Moon. Only EQT Corp. has said it will increase capital spending next year, though that was in December. We’ll see what officials say Thursday when EQT releases its latest quarterly earnings report.

The environmental group PennFuture celebrated Range’s cancellation because its lawyers were representing people who opposed the company’s application to drill within a mile of schools in a residential area.

Range is not pulling out of Mt. Pleasant, though. Or the Marcellus for that matter.

The company continues work on two other well pads in the township that it started last year. State records show Range has started drilling 27 wells since Dec. 1, all but two in Washington County.

“Range is hopeful that the next year brings forth the circumstances that will provide us with the opportunity to conduct activity on these or other locations in the township,” the company wrote in its letter to Mt. Pleasant.

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January 28, 2015
by David Conti


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Tapping shale’s opportunity

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The talk in the shale biz this week is all about them pipes.

Hart Energy’s Marcellus-Utica Midstream Conference started Tuesday night at the David L. Lawrence Convention Center, attracting most of the big names in gas pipeline and infrastructure development.

Builders say they’re insulated (so far) from the low natural gas prices that have some producers slashing budgets and jobs, and are moving fill-speed ahead. But a slow build-out of pipelines from the Appalachian basin has fueled the glut that’s helping to drive down prices.

A plodding and Byzantine regulatory and permitting process slows work, the industry says. That leaves overstocked producers in the Marcellus and needy consumers from Boston to Charlotte waiting.

Another group tapping their toes is a manufacturing sector eager to take advantage of what shale offers.

The American Shale & Manufacturing Partnership today released a report two years in the making that highlights challenges facing the industry and includes suggestions for moving forward. Based on brainstorming session that began in 2013 in Pittsburgh, many of the recommendations surround infrastructure, regulatory issues and permitting.

“Too often, regulatory barriers and insufficient agency personnel and resources inhibit forward motion. Industry may identify an implementation approach and plan the needed infrastructure only to return to the drawing board when government agencies express disagreement,” the report states.

Suggestions for overcoming such challenges include forming a task force or interstate board to smooth permitting and regulatory issues.

“We must commit to pursuing common sense policies that encourage capital investment into the region while identifying more practical ways to utilize these abundant resource,” said David Spigelmyer, president of the Marcellus Shale Coalition.

The report suggests speeding up some permitting processes, an idea that would likely garner some happy dances over at the Convention Center, where attendees heard about legislation aimed that way.

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The report also calls for building better relationships in the community to “resolve concerns.” The infrastructure build-out hasn’t always been embraced with open arms in towns through which new pipes must run.

One suggestion in the report for companies to deal with this: Don’t rely on tap-dancing from the in-house PR staff.

“Influential and trusted partners can play key roles in enabling public understanding. Community leaders, regulators, the media, community advisory panels, chambers of commerce, faith-based organizations, and universities and extension services can serve as trusted resources,” the report says. “These messengers can help to overcome the stigma which can be associated with industry-led communication campaigns.”

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January 26, 2015
by David Conti


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Round it goes

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Two years ago, a critic of natural gas development warned about a revolving door in Pennsylvania government.

Too many people moved too freely between positions in government and jobs at companies involved in the industry, the nonprofit Public Accountability Initiative claimed in a report, raising “questions about whether regulators are serving the public interest or private industry interests in their oversight of fracking.”

A few recent appointments by incoming Gov. Tom Wolf highlight a revolving door in Harrisburg, though this portal points in a different direction.

John Hanger, the new Democratic governor’s secretary of planning and policy, founded the environmental advocacy group Citizens for Pennsylvania’s Future — known by most as PennFuture — before serving as then-Gov. Ed Rendell’s secretary of the Department of Environmental Protection.

Wolf’s choice for his secretary at DEP, the department with the most oversight of gas drilling and related activities, is John Quigley. After leaving Rendell’s administration as secretary of the Department of Conservation and Natural Resources, which regulates drilling in state parks and forests, Quigley started working at PennFuture. For a second time. (See update below).

Who did Wolf pick to lead his DCNR and carry the new court-affirmed power to approve leases for drilling beneath parks? Cindy Dunn, a former DCNR official under Quigley who spent the past 14 months as president and CEO of a Harrisburg-based group you might have heard of: PennFuture.

Given Wolf’s choices, one could assume a gas industry struggling with low prices and the governor’s threat of higher taxes sees a revolving gun turret pointing at them from Harrisburg.

Dunn told the Trib a few months ago that she supported stronger regulations on the industry and drew “a strong red line” around drilling on public land. “We feel there’s already enough,” she said.

Quigley has been outspoken on his blog, calling for tighter rules on drilling, and told the Trib in September that he thought “government has generally missed the boat” on scientifically studying the effects of the drilling industry.

Senate Republicans made some recent noise about Quigley’s hard line on regulations, but the industry so far has shown a friendly front. The Marcellus Shale Coalition congratulated Quigley and Dunn, and America’s Natural Gas Alliance said it looked forward to working with Wolf’s administration.

Indeed, the revolving-door report from the Public Accountability Initiative included Hanger and Wolf’s Chief of Staff Katie McGinty among the industry greenwashers. McGinty, the group complained, served on the boards of gas power plant operators NRG Energy and Iberdrola USA. The anti-fracking film “Gasland,” the group pointed out, called Hanger “an equivocating tool of the natural gas industry.”

Surely Wolf told his new staff to check their industry tools at his office’s revolving door.

UPDATE:

Quigley’s 2011 return to PennFuture was in a contract role. He consulted with the group for about 14 months.

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January 20, 2015
by David Conti


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Not so well in the field

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Last month we talked with officials at GasFrac Energy Services about shale gas producers experimenting with waterless fracking technologies such as those the Calgary-based company offers.

At the time, marketing manager Adam Friio said GasFrac was getting more clients and more business, despite putting itself up for sale in November. “Things are going well in the field,” he wrote in an email.

They weren’t going so well in the boardroom, though. The company last week filed for protection from creditors under a Canadian bankruptcy law, and a Chapter 15 case in the United States.

A release from the company blamed “a combination of continuing negative operating results, limited access at the present time to capital markets … reduced industry activity resulting from depressed petroleum and natural gas commodity prices and the inability of the corporation to obtain a suitable offer for the purchase of the corporation or its assets.”

The “reduced industry activity” flowing from low oil and gas prices might become a recurring theme in some shale fields. Oilfield services firms such as Schlumberger and others are laying off workers and idling rigs as energy companies dial back activity.

A group of nine companies that include Downtown-based EQT Corp. and Houston firm EnerVest worked with GasFrac in the fall to frack an experimental well in Tuscarawas County, Ohio, using 75 percent butane and 25 percent mineral oil instead of water. The companies said it would be a few months before they knew how well it worked.

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January 13, 2015
by David Conti


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Still no clarity on cracker

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The only sure thing anyone can really say about Royal Dutch Shell’s proposal to put an ethane cracker in Beaver County is that it would create a lot of polyethylene to make plastics, and put a lot of compounds in the air.

“The facility will be a major source of air pollution,” said John Lee, an official at the Philadelphia-based Clean Air Council, which today released a review of the proposed plants potential health impacts.

More than two years after the international energy firm broached the idea of building the multibillion-dollar plant on the former Horsehead zinc smelter site, it has yet to make a final decision on the project.

The company has taken a few steps so it can get cracking right away if the project gets the green light; it agreed to buy the property and some nearby land and it’s moving the closest highway around. Last week it demolished the last Horsehead smokestack. Last year applied for an air quality permit from the state, which is required for major polluters.

That permit gave us our clearest look at what the plant will do as it converts ethane — which comes up with the natural gas in many Marcellus shale wells around here — into the building blocks of diapers, bottles, detergent and other plastics-based products. Analysts told the Trib last year this would be a major producer of the chemical.

And pollution. The emissions numbers Shell wants a permit for would put it among the Top 10 air polluters in the region. That’s probably why the state Department of Environmental Protection is still doing its technical review of the application, a line-by-line look at all 715 pages that began in June.

“They’re just going through it very carefully,” said DEP spokesman John Poister.

The Clean Air Council spent seven months reviewing the application and surveying neighbors for its health impact assessment. Its conclusion: “If the proposed facility is eventually constructed, it will have significant environmental, social, and economic impacts. However, the full extent of these impacts is not clear at this time.”

The council said it really wanted to get a discussion going on potential impacts, though that began last year when Shell started hosting some well-attended meetings on the project.

Civic leaders and some neighbors say they’re tired of talking about the cracker. They want to know if it’s ever coming.

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January 12, 2015
by David Conti


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What if he asked nicely?

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Dr. Alfonso Rodriguez won’t try just asking nicely.

He says he wants to know exactly what’s in the fluid that gas drillers use to fracture the Marcellus shale deep below his Luzerne County home for many reasons: so he can treat patients who come into contact with it; because he thinks it will tell him how pure the drinking water is in his town; and so he can tell others that he thinks drillers are poisoning the environment.

But he will not ask the companies.

“He’s not going to jump through their hoops,” said Paul A. Rossi of Kennett Square, Rodriguez’s attorney in the doctor’s two-year legal battle with Pennsylvania. “We’re doing this to make a point as well.”

The Act 13 state gas law from 2012 requires drillers to divulge to doctors any secret ingredients in their fracking fluid if they need the information to treat or diagnose a patient, and if they sign a confidentiality agreement promising not to improperly share any trade secrets.

It’s that second “if” that keeps Rodriguez from asking, and his lawyer appealing rulings against them.

Rodriguez, president of the anti-industry Gas Drilling Awareness Coalition, considers that part of Act 13 a medical gag rule and has asked federal courts to declare it unconstitutional. A judge twice ruled Rodriguez lacked legal standing because, among other reasons, the law hasn’t actually harmed him.

Because he hasn’t asked.

Rodriguez, who last year appealed to the 3rd U.S. Circuit Court in Philadelphia, says asking would put him in jeopardy of violating his professional duty to share with others knowledge of a harm to fellow man. Because if he asks for the names of any fracking fluid ingredients that drillers consider proprietary, they’ll make him sign a confidentiality agreement.

“The state can’t leverage its police power by forcing my client to give up his First Amendment rights,” Rossi said.

For its part, the state disagrees.

“Dr. Rodriguez, like any other citizen of Pennsylvania, does not have an independent right to obtain trade secrets and proprietary information from private parties in the oil and gas industry,” the state Attorney General’s Office wrote in a response to the appeal last week. “He is no more injured by these restrictions than anyone else who wishes to obtain and use such information to advance their own personal beliefs or political viewpoint.”

Commonwealth Court last year upheld a separate challenge to this part of Act 13 because, its judges ruled, a confidentiality agreement would not keep a doctor from sharing information with fellow doctors or putting it in medical records, which are confidential.

The attorney general argues that blocking the law would do Rodriguez more harm than good. This part of Act 13 not only doesn’t limit the release of information, “it has created a mechanism through which medical providers may obtain information for the limited purpose of providing medical treatment for patients.”

He just has to ask.

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December 30, 2014
by David Conti


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Follow the signals

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A few months ago, when Steve Mueller was explaining why Southwestern Energy would spend $5.4 billion on wells and leased acres in the southwest corner of the Marcellus shale, he said he thought the market was “missing some of the signals” that demand would prop up natural gas prices.

On Tuesday, the Houston company’s CEO admitted “many may be thinking Southwestern missed the signals of the supply side of these economics.” That’s the glut of the natural gas supply that has driven natural gas prices to two-year lows over the past month.

If investors expected an about-face from Southwestern, which got battered by investors who thought the company overpaid for the assets Chesapeake Energy abandoned in West Virginia and Washington County, or for the company to follow others that announced cuts in capital spending for next year because of the prices, they were disappointed.

Mueller doesn’t seem like much of a follower in these times of belt-tightening in American shale. He still expects a growth in demand to bring natural gas prices back above $4.

Mueller announced the company is increasing its Appalachian budget for next year as it looks to drill up to 70 wells in this corner of the Marcellus and another 100 in Northeastern Pennsylvania, where it bought more acres from WPX Energy. Southwestern will spend $2.8 billion as it looks to increase gas production by more than 28 percent.

Since oil prices tanked on OPEC’s declaration of a price war on U.S. shale production, many analysts and companies have talked of declining rig counts across the heartland, with a chance more drilling might crop up in Appalachia.

That seems to be playing out. Mueller, whose company passed EQT Corp. to become the state’s No. 4 shale producer before it went on its buying spree, said he expects to have 11 rigs working in the Marcellus and stacked horizons by 2017.

Cecil-based Rice Energy plans to keep eight rigs running in the Marcellus and Utica shales next year, CEO Dan Rice said recently. Rice is on pace to crack the top 10 in shale production soon.

Both companies are making moves worth following in 2015.

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