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May 18, 2015
by David Conti


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Second chances

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An old adage attributed to Will Rogers often echoes in the debate over responsible shale drilling in Pennsylvania.

“You will never get a second chance to make a first impression.”

The gas companies have been dealing with this for several years, it seems, tainted by the early rush to drill the Marcellus that sometimes took a more aggressive approach to securing land and water for drilling than to protecting them.

Some of their early wells didn’t have the protections mandated today, leading to leaks that fouled drinking water and continue to haunt all involved. A Penn State study this month claimed to link trace amounts of chemicals found in water at three Bradford County homes to shale wells drilled in 2009.

The lead author had worked on a lawsuit the homeowners filed against the gas company. The chemicals are used in other products and very well could have come from another source. An analyst with the Environmental Defense Fund noted in a New York Times report on the study that drillers have improved their wells and added more protections since 2009.

But the headlines in 2015 still read: “Drilling linked to chemicals in water.”

Drillers cannot shake their mistakes of the past, nor should they, according to some who attended a forum last week on shale waste at Chatham University.

About 50 people who went to the League of Women Voters’ event into the Eddy Theatre had a chance to get many impressions of how waste is handled. The panel of speakers included Nadia Steinzor from the anti-drilling group Earthworks, state Department of Environmental Protection Deputy Secretary Scott Perry, Seneca Resources spokesman Rob Boulware, Carl Spodaro from waste treatment firm Max Environmental, and Barbara Lucia, a citizen activist who fought plans to put a treatment plant in her Warren neighborhood.

The crowd also heard a stark admission from an agency dealing with its own missteps from administrations past.

“The oil and gas program we had in 2008 was not up to the task,” said Perry, who leads that office at the DEP. The department had neither the staff nor rules in place to adequately protect land and water when shale drilling started to take off.

After tripling its staff of inspectors and strengthening well integrity rules that experts say might have prevented leaks like those in Bradford County, the department started a process to enact wide ranging regulations that continues as we speak.

Environmentalists said the first version of those regulations fell short in some areas, such as dealing with open pits of waste at wells. A new draft eliminates those and takes other steps.

Those who missed a chance to give DEP their impression of those rules have a second chance: the public comment period on the proposed changes ends Tuesday.

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May 15, 2015
by David Conti


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How soon, Shell?

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“Soon” is a relative term, especially in a process that already has stretched on more than three years.

The process involves the question of whether global mega-energy company Royal Dutch Shell will build a so-called ethane cracker in Beaver County. The muiltibillion-dollar plant would convert some of the natural gas liquids coming from shale gas wells into a product used to make plastics.

The soon involves an apparent off-hand comment by a Shell official last month. IHS Chemical Week reported that Graham van’t Hoff, an executive vice president, said “on the sidelines” of an event in Germany that Shell would make a decision on the cracker soon.

Shell has said it has no time line for making a decision. This week a spokeswoman said that hasn’t changed, despite Hoff’s comments to the analyst publication.

“A number of steps remain before Shell will be in a position to make a final investment decision,” she said. “The project will be assessed on its own merits, and in the context of returns and affordability from a group perspective, before a decision is taken. This project has to compete for capital against other Shell projects worldwide.”

That competition for capital is surely a nasty one within a company whose profit during the first quarter fell 56 percent from a year ago, as least partly because of the crash in oil and gas prices.

And supporters excited by the prospect of all those jobs and related business need to keep in mind that the decision might not be what they want to hear. Shell could very easily say all those billions aren’t worth investing here.

Still, the company has given folks plenty of reason to think that soon might not be far off. It spent millions buying land at and around the site it chose along the Ohio River and continues to work on preparing the spots and surrounding roads. It filed for a major air permit from state environmental regulators, and the IHS piece said Shell finished its “front-end engineering design” study.

We’ll let you know when we hear more. We just don’t know how soon that will be.

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May 13, 2015
by David Conti


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Questions on the agenda

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You can take the future department secretary out of PennFuture. But you can’t take PennFuture out of the line of questioning she’ll face from lawmakers.

The Senate Environmental Resources and Energy Committee this morning gave its blessing to Gov. Tom Wolf’s choice to head the Department of Conservation and Natural Resources, Cindy Dunn, but not without some pointed questions connected to her last job.

Dunn, who still requires approval from the full Senate, comes back to state government from PennFuture, a statewide conservation and environmental group that has taken a hard line against the booming natural industry industry and other fossil fuel sectors. She was its CEO until January.

She’s not the only PennFuture alum whom Wolf has tabbed for his nascent administration, a point we discussed in January, and that apparently leaves some people uneasy.

“It makes a lot of folks uncomfortable that there’s so many in pretty high-profile positions. Some that are approved by the Senate … others that are not,” Sen. Scott Hutchinson, a Republican whose district stretches from Butler County into the Allegheny National Forest, told Dunn before the committee voted on her nomination.

“It leads to some uneasiness, I guess,” he said, before asking whether she planned to hire more people from the group. “I think the concern is you’re bringing in a direct agenda from an outside agency into state government.”

Dunn said PennFuture has no specific agenda that should cause concern, and promised to recuse herself from any grant-awarding decisions involving any previous employer. She left the door open to potentially hiring more PennFuture employees, though.

“Each pool of candidates is different. It’s too soon to say,” she said, noting there’s only so many experts on conservation in the state, which leads to “overlap.”

Committee Chairman Gene Yaw raised concerns about a report PennFuture issued under Dunn’s leadership that he said advocated for the department to fight in court against gas drillers who have mineral rights in the Loyalsock State Forest.

“Maybe you don’t like the rights, but they have them, and we have to honor them,” said Yaw, a Republican whose district includes that controversial piece of land.

Wolf blocked any further leasing of state land for drilling, but Dunn’s department must deal with drilling under existing leases.

Dunn said discussions about how to approach the issue would likely occur in Wolf’s office. It’s worth noting that John Hangar, Wolf’s secretary of policy and planning, founded PennFuture.

Another PennFuture alum, former DCNR Secretary John Quigley, is scheduled to appear before Yaw’s committee June 2 as it weighs in on his nomination to lead the Department of Environmental Protection.

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May 4, 2015
by David Conti


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Diving deeper

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It’s easy to get lost in the numbers this time of year.

Earnings season brings a flurry of carefully crafted comments from shale gas company CEOs choosing words they hope won’t overly worry investors who have already taken a bite out of stock prices over the past year.

So over the past two weeks we’ve heard a lot of numbers; billions of cubic feet of gas produced, millions less in revenue, thousands of feet of lateral drilling.

And the smallest number, the price per thousand cubic feet that companies are getting for all that gas. In many cases that averaged well below $3 this past quarter as prices hit their lowest point since 2012.

“Marcellus pricing continues to be the primary focus of our conversations with shareholders,” Dan Dinges, CEO of Cabot Oil & Gas, told analysts on a recent call.

The low prices, the combined result of a glut of shale gas and a shortage of pipelines to take it to good markets, created a pattern in the financial results of many of the Marcellus’ most active companies.

Cabot, EQT Corp., Range Resources, Consol Energy and Southwestern Energy all reported huge increases in production and drops in gas revenue that reduced profits compared to the same quarter a year ago.

A deeper look at the results and ways companies say they will cope with the low prices reveal a few trends worth noting.

First, the southwest corner of the state is ruling the rock.

“We’re focused on our highest rate of return areas of Greene, Washington and Allegheny counties,” Consol CEO Nick DeIuliis told analysts last week.

Cabot, which primarily drills in the northeast corner, plans to dial back production there, and Seneca Resources already did.

But in this part of the state, Consol, EQT and Range are looking to pull more gas from the ground.

Range seems to have found the sweetest spot here. It says it drilled the top producing wells in both the Marcellus and Utica shales this year in Washington County.

Possibilities in the Utica shale, especially below their established positions in the Marcellus in Washington and Greene counties, dominated much of the talk of what’s ahead for producers. The deeper layer of rock is more expensive to tap, but can yield more gas at higher pressure.

“This year will certainly be a year of testing the Utica,” EQT executive vice president Steven Schlotterbeck said.

To sell all that gas coming from Utica wells, some companies are looking at new customer arrangements.

Range said it found an overseas buyer for a big load of liquefied natural gas, once exports begin. Consol found a utility that will buy both its gas and coal to fire power plants.

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April 20, 2015
by David Conti


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These are not the plans you’re looking for

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Thomas Griffith and Brett Kavanaugh seem to be in the minority when it comes to a federal proposal to cut greenhouse gas emissions from power plants.

Faced with adjudicating the first big legal test of the Environmental Protection Agency’s so-called Clean Power Plan, the two federal judges last week wondered aloud whether they should wade into questions over the legality of a policy when the final version hasn’t yet been written.

“We could guess what the final rule looks like, but we’re not usually in the business of guessing,” Griffith said during arguments before the U.S. Court of Appeals for the District of Columbia Circuit.

Such reticence has been rare during most discussions of the Obama administration’s plan to require states to reduce carbon dioxide emissions from plants by 30 percent. Opinions have been strong and loud.

Opponents and supporters have spent the better part of a year trying to convince others that the plan will either bring the electrical grid crashing down while quadrupling utility bills, or provide our only hope of avoiding a climate resembling that planet where Luke Skywalker grew up.

Neither scenario sounds like much fun. It’s unlikely that many environmentalists who favor the plan really want to live in the dark, and most industry types opposed to the policy are not yearning for a light saber battle with the Sand People on Tatooine.

Yet the rhetoric in this fight has reached some stratospheric levels.

Murray Energy CEO Robert Murray, one of the plaintiffs in the legal challenge being heard by Griffith and Kavanaugh, last year compared the Obama White House with the Nazi regime during a visit to Pittsburgh. He called climate change a hoax.

Last month, Sharon Wilson, an organizer for the environmental group Earthworks, compared oil and gas fracking in Texas with rape.

Given the measured approach signaled in court, we can probably expect an opinion from Judges Griffith and Kavanaugh free of any comparisons with Nazis, rapists or Jedi knights, though federal courts move so slowly, we probably will see another “Star Wars” movie hit theaters first.

In the meantime, those looking for a more reasoned debate of the plan’s pros and cons had some good opportunities this month.

The Center for American Progress last week laid out an argument last week for speeding up the switch to more renewable sources of electricity while still relying on natural gas, as outlined in the Clean Power Plan.

On the other side, Kevin Sunday, government affairs manager for the Pennsylvania Chamber of Business and Industry, told a House Energy and Commerce subcommittee that it supports legislation that would put the plan on hold until lawsuits are resolved so customers don’t experience huge rate swings.

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April 16, 2015
by David Conti


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Seize the LNG

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This week we heard from several timely reports looking at future trends in energy and related policy.

A big one came from the U.S. Energy Information Administration. Its annual Energy Outlook with predictions out to 2040 runs through several policy scenarios to draw a likely picture of the U.S. energy landscape in a few decades.

Such predictions are, as a favorite former colleague liked to say, “fraught with peril.” Does anyone believe that anyone predicted 10 years ago that a layer of rock beneath Pennsylvania would become the largest area of natural gas production in the country by 2015?

Still, there’s plenty of evidence to support the EIA’s position that the United States could become “energy neutral” in a few years. Our ability to produce oil, gas and related hydrocarbons are set to balance out with less thirst for those things produced overseas.

The report assumes the U.S. will export some of that increased production in the form of liquefied natural gas. Again, just a few years ago, we were building for the opposite on predictions of importing gas.

Reversing course is taking a lot of time; too much, according to America’s Natural Gas Alliance. The trade group on Thursday released a report it called “Carpe Diem,” arguing why regulators need to approve LNG export projects now to make that future happen.

“We need to act soon,” ANGA CEO Marty Durbin said, noting other countries will take our potential customers if the U.S. drags its heels any longer.

Despite a slowdown in drilling tied to low oil and gas prices, all indicators show we’ll continue to produce enough gas to meet both domestic and international needs without a huge spike in consumer costs, advocates say.

Those low prices also mean companies have less money to spend on big export terminal projects. Some worry a dial-back in spending now will mean more time wasted before LNG tankers set sail from American ports.

Royal Dutch Shell’s recent move to acquire BG Group might ease concerns. Analysts generally say the combined company will be an LNG export machine.

Time will tell.

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April 6, 2015
by David Conti


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Moving into position

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Squeezed by low natural gas prices that show no sign of recovering anytime soon, the captains leading some of the biggest enterprises in the Marcellus shale are taking evasive maneuvers.

Nearly all the major shale gas producers in Appalachia started the year by tapping the brakes. As a group they cut capital budgets by more than 25 percent, led by reductions of more than 40 percent at Range Resources and Rex Energy.

Nobody appears to be deterred, despite some predictions of bankruptcies and mergers in the year to come. Production continues to rise even with companies such as Chesapeake Energy shutting off some wells in the swamped Northeast corner of Pennsylvania and 15 fewer drilling rigs working in the Marcellus.

Several producers have taken steps in the past few weeks that could help them deal with potential trouble.

Cecil-based Consol Energy last week finished up a sale of $500 million in bonds. Pennsylvania’s 11th largest shale gas producer is making big moves in its coal operations this year, starting with the planned spinoff of a master limited partnership to operate its massive mines in Greene and Washington counties.

Using money from the bonds to pay off two older bond issues improves Consol’s debt load ahead of spinning off its coal operations by midyear into a company named CNX Coal Resources, said Chiza Vitta, an analyst in Dallas with Standard & Poor’s Rating Services.

“Consol is an atypical company … in that they’re in both businesses. They’re trying to grow the oil and gas business” while battling a tough coal market, Vitta told the Trib. “You want to position yourself a little better to do that and that’s what happened.”

The move amounts to a refinancing, Vitta said, and Consol didn’t pull out any cash to fund its drilling budget, which it recently pared again to about $920 million, down from $1.3 billion last year.

One of its neighbors at Southpointe, however, is charting a similar course to raise cash.

Rice Energy, No. 13 and growing on the state’s production list, announced March 23 the sale of $400 million in bonds “for general corporate purposes, including capital expenditures.” Rice said its $890 million capital budget for 2015, which is nearly 20 percent lower than last year’s spending plan, is fully funded by existing liquidity and credit. But it opened the door during its most recent earnings call to a move to “provide cushion” for next year.

CFO Grayson Lisenby told analysts 11 days before the bond issue that Rice was “actively monitoring the debt capital markets for opportunities to prefund 2016 growth capex.”

With worries about potential interest rate increases this summer — when natural gas prices are expected to dip even lower — Rice might have picked a good time to move. Since announcing the offering, Rice stock increased nearly 11 percent to $22.04.

One of the more drastic moves among local producers last week came from State College-based Rex Energy, though it did not signal a change in course. The state’s 17th largest shale producer has been looking for a partner to help develop acres it bought last year from Chesapeake.

It announced a joint venture agreement with an affiliate of Boston-based ArcLight Capital Partners.

The private equity firm’s $67 million in funding should keep afloat Rex’s drilling plan in and around Butler County.

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March 24, 2015
by David Conti


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Advice and dissent

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A follow-up on the Technical Advisory Board and its most recent meeting

The Department of Environmental Protection this week announced who will fill the seats on its newly created advisory board for conventional drilling — since the original TAB will focus solely on shale drilling.

The Conventional Oil and Gas Advisory Committee (COGAC, which hopefully will be pronounced like the Telly Savalas character) will consider a separate book of regulations for legacy drilling that DEP must write.

The voting members, from DEP’s news release:

• Mark L. Cline Sr., production supervisory & on-site manager, Cline Oil Inc.
• David Ochs, senior geologist/geology and operations manager, Kriebel Resources Co.
• A. Bruce Grindle, president, Oil & Gas Management Inc.
• Dave Yingling, engineer, Rosebud Mining
• Burt A. Waite, senior geologist, Moody and Associates

If that last name sounds familiar, it means you pay way too much attention to the membership of DEP advisory boards. Mr. Waite was on the old TAB until the DEP and Gov. Tom Wolf replaced that board recently.

If the board appears to be full of industry people, some say that’s the point. It advises regulators on technical industry issues.

But like the new TAB, Wolf and the DEP appointed four non-voting members to add non-industry perspective. For the COGAC (Who loves ya, baby?), those members are:

• Jim Morrison, chief administrator, Murrysville
• Doug D’Amore, DCNR Sproul State District Forester
• R. Keith Hite, vice President of public relations, Blackford Ventures; former executive director, PA State Association of Township Supervisors
• Sherry Tune, forest supervisor, Allegheny National Forest Service

The addition of non-voting members to the TAB brought protests from industry groups that believe those environmental and community voices don’t have a place in the board’s proceedings.

The environmental group PennFuture took to Twitter to question whether the industry was trying to “quash public input” in the rule-making process.

John Walliser, vice president of the Pennsylvania Environmental Council and a new non-voting member of the TAB, today posted on his group’s website a well-reasoned defense of his presence at the new table. It included:

The TAB is an advisory board with no formal authority respective to the department. It does not have the ability to approve or reject any regulatory or policy proposal. Its purpose is solely to provide input to the department, and that purpose is certainly not harmed by the presence of new or additional members.

Like the industry, groups such as the PEC contributed to the 24,000 public comments the state got on new drilling rules, and not all of its comments were reflected in the latest draft, Walliser noted.

COGAC gets its first public airing at 10 a.m. Thursday. For those who insist on paying too much attention to DEP advisory boards, the meeting will be telecast.

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March 23, 2015
by David Conti


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Going all Al Pacino

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The nine people tabbed for the new TAB already were under the statutory gun.

The state Department of Environmental Protection has a tight deadline to approve before next March a sweeping set of rules aimed at protecting people, air, water and other resources around shale gas wells; so tight it can’t hold new hearings on the latest draft.

Still, the department’s leadership under Gov. Tom Wolf wanted new members for the TAB — the Oil and Gas Technical Advisory Board — to replace advisers who had been around awhile; so long that two members were appointed by Gov. Robert P. Casey, who died in 2000.

Despite the deadline for rules on which the department needs the TAB’s advice, officials postponed its meeting to allow Wolf to quickly appoint five replacements and four new nonvoting members; so quickly the Department of State did not have time to finalize their membership in time for last Friday’s meeting in Harrisburg.

The new board still met to hear an explanation of changes made in the latest draft of the rules dealing with wastewater impoundments, noise limits and setbacks from streams and playgrounds.

It could not, however, vote to establish the new structure sought by the department, such as adding the four nonvoting members and imposing staggered term limits to avoid members whose appointment paperwork is only available on microfilm.

So the board also heard from some gas industry representatives who aren’t too happy with the rush to add either new rules to their operations or nontechnical members to a technical board.

“I don’t mean to go all Al Pacino here, but this whole proceeding is really out of order,” said Kevin Moody, general counsel and vice president for government affairs at the Pennsylvania Independent Oil & Gas Association.

He urged the new voting members to reject changes that aren’t covered by the statute that created the board.

The statute dictates some of the qualifications for those five voting members. Three must be petroleum engineers or geologists, or experienced drillers. One has to be a mining engineer from the coal industry. The fifth member is a geologist or petroleum engineer nominated by the Citizens Advisory Council.

Given those parameters, the makeup of the voting portion of the board did not change drastically. Old board: a retired Penn State researcher, a former Consol Energy executive, a gas company engineer, a geologist from an environmental and engineering consultant, and an oil company head.

New board: Penn State researcher David Yoxtheimer, Consol Energy engineer Casey Saunders, Shell geologist Robert Hendricks, geoscience consulting firm owner Fred Baldassare, and Bryan McConnell, environmental manager for energy company Tenaska.

It has plenty of industry representation, and McConnell has served as vice chair of the Marcellus Shale Coalition’s Natural Gas Use Committee.

The nonvoting members could provide a decidedly non-industry voice, and provided the meeting’s only comments aimed at strengthening the latest proposal.

John Walliser is vice president of the Pennsylvania Environmental Council. Michael Griffin, director of the Center for Climate and Decision Making at Carnegie Mellon University, studies environmental impacts of energy systems. Barbara Kutchko is a researcher at the Department of Energy. Emily Krafjack leads a community group focused on how drilling impacts neighbors.

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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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