Dear RDA Members and Friends,

With HB 1950, now know as PA Act 13, set to take effect in mid April, some media outlets are stepping up to the plate and delving into specific issues surrounding this unfortunate piece of legislation. Then there are newspapers like the Williamsport Sun-Gazette.

Take their March 12th editorial entitled, "The Message Behind Reduced Gas Drilling", in which in the editor's typical insightful brilliance is on display as he reaches this conclusion after a litany of the obvious:

"Most importantly, those who advocate exorbitant taxing of the gas industry need to pay attention to how prone the industry is to market forces and how quickly it can change game plans and destinations."

Inflammatory descriptions like "exorbitant taxing" are no doubt directed at those who advocate a total state government fee and tax rate for a severed, non-renewable natural resource that is at least competitive with other major producing states. This reference could also include those who advocate an investigation to determine how Pennsylvania's closer proximity to major markets affords us room to adjust charges accordingly. Instead of digging into the true realities of gas development for our area, the editor takes his usual approach, echoing Harrisburg's current administration; no searching for better outcomes for the future, let alone the current majority of Pennsylvanians, it is all about fear of not appeasing our industry "partners".

Contrast this to the work done by the staff of the Towanda Daily Review in their March 9th piece, " Gas drilling companies state how they would be affected by Bradford County gas impact fee". In answering questions, well operators, despite the required hedging we have left out, were reasonably candid in their answers. The obvious conclusion to be drawn from these interviews is that above-the-line fees are not a determining factor in their business plan. (See Impact Fee Q & A at the end of this newsletter)

The point the Sun Gazette's opinion maker misses is this: it is not Pennsylvania's problem that the NG market is volatile and difficult to navigate. We need to do the difficult work of figuring out what truely is in the best interest of the Commonwealth and let the chips fall where they may for operators and that small percentage of our citizens who have tied their fortune to the whims of the energy marketplace.

There are many issues that should be worked out at the state government level regarding the true influence of additional charges on the pricing of the commodity, but those challenges and opportunities are not approached by anything close to a creative and open minded manner by our political "leadership" and knee-jerk editorialists. Examples: for PA industries, businesses and consumers, there could be rebates or exemptions for an expanded impact fee or a severance tax on PA gas; for landowners which predatory leases, rebates for fees to be paid by them instead of well operators.

For electrical power generators and their consumers, look at the implications from a March 13th article in Energy and Environment Daily, "Natural gas's power share increasing at coal's expense". Author Saquib Rahim, states:

 Market analysts expect power plants fueled by natural gas to provide even more electricity in 2012, squeezing coal's market share as natural gas prices remain stubbornly low.

A slow economy and mild winter helped the price of natural gas tumble to $2.50 per million British thermal units at the Henry Hub last month...

At that price, some market analysts believe, there is no coal unit that can compete.

In a research note yesterday, energy investment firm Tudor, Pickering, Holt & Co. LLC said a price of $2.50 makes gas power cheaper than even the lowest-cost coal units, fired on the lowest-cost coal available.

Tudor Pickering said even $5 natural gas can knock off some of the less efficient, older coal plants in the eastern United States. As natural gas drifts toward $3, it matches up with low-cost coal units in the Midwest. Below that, even the less-efficient natural gas plants are competitive.

....the cheap gas has compelled many utilities to take advantage of their natural gas plants -- units that were originally built for demand spikes but are now being recruited to carry the baseload.

If gas prices should rebound, analysts have suggested, coal will recover part of the load

There is information that leads to a number of thoughts for those who see NG replacing coal for electrical power generation as a net positive for society and our atmosphere. That is still a controversial issue for many. See:

http://www.bloomberg.com/news/2012-03-14/sierra-club-spurns-30-million-gift-after-fracking-turns-toxic.html

The point here is that a thoughtful, creative and flexible fee/tax policy, is one that could help keep commodities competitive at times to benefit consumers, provide a boost to much-needed state revenues at other times and/or help address climate issues seriously as the consensus to do builds momentum. It also offers the possibility of exerting a decent level of control over an out of control development in a way regulation never will.

By necessity of corporate power, and perhaps human species survival, such changes in tax policy may increasingly have to become the way of governance the 21st century. The least of our concerns in formulating these equations should be the startling revelation that the industry is prone to market forces. They can take care of themselves in that regard quite well.

IMPACT FEE Q &A:

Whole Article:

http://thedailyreview.com/news/gas-drilling-companies-state-how-they-would-be-affected-by-bradford-county-gas-impact-fee-1.1283236

The Basics:

1) If a gas impact fee, as authorized by HB 1950, is levied in Bradford and Sullivan counties, will it cause your company to cut back on its drilling activity in those two counties?

Chesapeake Energy: We do not anticipate that enactment of the fee will substantially change the level of activity focused in Bradford County. Several weeks ago, Chesapeake announced a reduction in rig count in the dry-gas areas of the Commonwealth which includes Bradford County. The market price of natural gas was the determining factor in that decision...

Talisman Energy USA: Due to historically low gas prices, Talisman has already made the decision to move more than $800 million out of Pennsylvania in 2012 to liquid-rich plays that offer a higher return on investment...

Chief Oil & Gas: The impact fee will not cause Chief Oil & Gas to cut back on our development activity in Bradford or Sullivan Counties, but the lower price of gas could have an effect.

Southwestern Energy: As a standalone, the impact fee will not materially impact our current activity in Bradford County...

2) If the gas impact fee is levied in Bradford and Sullivan counties, will it cause your company to cut back on the amount of major road construction projects that it is undertaking in those two counties?

Chesapeake: Chesapeake stands by its commitments to local municipalities and PennDOT, regardless of whether the fee is implemented or not...

Talisman: Talisman will continue road upgrades and reconstruction where it is necessary to access new and existing well pads in our operating area...

Chief: Chief has improved 80 miles of road in 2011 and will continue to repair and maintain the roads that we utilize for our operations to ensure that safety of everyone using them. This commitment will not be changed if an impact fee is levied in Bradford & Sullivan counties...

Southwestern: The proposed impact fee will not stop us from repairing road damage caused by our operations...

4) What will be the financial impact on your company if a gas impact fee is levied in Bradford and Sullivan counties?

Chesapeake: ...On an ongoing basis, we expect the impact fee (combined with other state taxes and operational costs in Pennsylvania) will be competitive with other states where we operate and will enable Pennsylvania to successfully compete for capital investment.

UPDATE: 

For those following the Riverdale Mobile Home Village situation, first  reported in the   Williamsport Sun-Gazette on Sunday: 

:http://sungazette.com/page/content.detail/id/575944/32-unit-village-n...

Latest reports state residents have been given more time to move their homes in order for the new owner to build a water withdrawal facility. Bryn Mawr, PA based Aqua PVR LLC has extended the deadline another month, to June 1st and increased the relocation allowance to residents to $2,500 per home, as long as they are out of the park by June 1st.