Get involved with decision makers early and often or the prosperity that natural gas drilling/production has brought to Pennsylvania in the last six years could slow substantially, speakers agreed at the Upstream PA 2015 oil and natural gas program last Thursday, April 16.

Regulation, proposed tax legislation and the proverbial elephant in the shale play, bottom-hugging natural gas prices, collectively were cited by speakers as having a huge impact on which direction production moves in the Keystone State.

Everyone Has ‘Skin in the Game’

“People say they don’t have any skin in the game, if they aren’t employed in the oil and gas industry, but I would say everyone has skin in this game,” Dave Spigelmyer, President of the trade group Marcellus Shale Coalition, told an audience of roughly 150 at Upstream 2015.

“We have to be involved in the debate about which way this industry goes,” said Jim Rodgers, Marketing & Business Development Director with Harrisburg, PA-based Dawood Engineering. “We need to tell how we are impacted by this industry – it is our job.”

The conference was held at the Penn Stater Conference Center in State College. Shale Energy Business Briefing (SEBB) attended.

Spigelmyer added shale coalition members have chopped $9 billion from their capital expenditure budgets in 2015, much of the drop due to low gas prices.

Grass Roots Participation

Bob Johnson, President of lobbying firm ADKL, said there must be a grass roots movement, to explain the positive benefits of continued oil and gas development in Pennsylvania.

“We need to get farmers out to public meetings to speak – we need leaseholders to speak at public meetings because they have the most to lose with a drilling/production slowdown,” Johnson said.

Spigelmyer, and George Stark, External Affairs Director for Houston-based independent producer Cabot Oil & Gas, both emphasized the importance of sufficient infrastructure, pipelines, being crucial to continued Pennsylvania production.

“There is a dire need for infrastructure improvements,” Spigelmyer said.

Still, today’s price for natural gas, well under $3/Mcf in state, is severely impacting the number of wells drilled, according to Stark.

“Cabot invested $1 billion in 2014, in Susquehanna County, but will invest $540 million in 2015, and the reason is [low] natural gas prices,” Stark said.

Pennsylvania’s Natural Gas Prices Barely Top $1

Spigelmyer pointed out with the average natural gas price at three Pennsylvania price points sitting at just $1.20/Mcf, Pennsylvania Gov Tom Wolf’s proposed 5% severance tax, plus 4.7 cents/Mcf taken from the ground, is much worse than proponents spin. “At the current price in state for gas, in order for the governor to reach the $1 billion figure he wants a severance tax to generate for education, the effective tax rate is 19.39%. Even the current 3% impact fee, given today’s gas prices equals a 14.2% effective tax rate.”

Stark brought the Wolf tax down to the company level. “Wolf’s tax would cost Cabot $120 million – and we would take that money from capital expenditures,” according to Stark. “In 2015, that would reduce the $540 million we intend to spend, to $420 million.

“You can’t just waive a wand and get $1 billion,” Stark said.

Spigelmyer pointed out the current effective tax rate on drilling in neighboring Ohio is just 1%. The Republican leadership in the Ohio House last week effectively killed fellow Republican, Gov John Kasich’s latest push to substantially increase the state’s severance tax.

“In 2016-2017, we see capital marching out of Pennsylvania,” Spigelmyer said.

By: Rick Stouffer, Senior Energy Editor, Shale Energy Business Briefing