Taxes and Regulations for Marcellus Shale Development and Production

February 15, 2010

New Natural Gas Regulations

Pennsylvania Governor Ed Rendell has announced new regulations for Marcellus Shale gas. He also says that he has asked the Department of Environmental Protection (DEP) to hire 68 (no one knows where that number comes from) new employees to ensure the enforcing of the new regulations and laws.

Marcellus Shale producers are happy to hear the governor's announcement as Marcellus Shale Coalition (MSC) President and Executive Kathryn Kelaber says the coalition has supported the hiring of more DEP employees to monitor the gas wells to make sure that Marcellus Shale development remains environmentally responsible.

MSC also reports that Marcellus Shale developers have a strong environmental safety record due to state regulations and industry efforts. MSC says that out of 14,000 field inspections, only 1.1 percent needed correcting.

Pennsylvania's efforts to add new regulations and laws to ensure all shale work remains safe and MSC's support of those regulations is a step in the right direction. A Penn State University study reports that natural gas producers have over $10 million invested in Marcellus Shale with an expectation of generating over $800 million in state and local tax revenues in 2010 and creating over 100,000 new jobs by the end of the year.

Severance Tax on Natural Gas Production

Gov. Rendell is also working to avoid a shortfall for the upcoming fiscal year by issuing a severance tax on the Marcellus Shale drilling boom. This would recoup over $100 million. The governor believes the natural gas industry can afford the tax by explaining that Marcellus' producers has paid twice as much at an auction for state forest lands for drilling. Much of the debate surrounding severance taxes is to where the $100 million of potential revenues from the tax should be distributed.

However, natural gas producers are against the tax. The coalition says natural gas companies can't easily afford to pay severance tax because they deal with the high expense of shale well drilling and the costly state regulations and laws. For shale developers in Texas, Arkansas and Louisiana, the tax is discounted initially to allow shale developers to recoup their investments in each well.

Nothing is official yet. A Rendel spokesperson says the governor is open to discussion on the taxes, regulations and laws, as long as it doesn't sacrifice protecting the environment.