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April 20, 2015
by David Conti

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These are not the plans you’re looking for


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.


April 16, 2015
by David Conti

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Seize the LNG


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.


April 6, 2015
by David Conti

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Moving into position


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.


March 24, 2015
by David Conti

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Advice and dissent


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.


March 23, 2015
by David Conti

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Going all Al Pacino


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.


February 23, 2015
by David Conti

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Looking for greener grass


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.


February 9, 2015
by David Conti

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How long?


“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.


February 4, 2015
by David Conti

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Better news for steel


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.


February 3, 2015
by David Conti

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Pulling permits


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.


January 28, 2015
by David Conti

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Tapping shale’s opportunity


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.


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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