Washington --23Jun2010/525 pm EDT/2125 GMT
Financial analysts Wednesday said that Pennsylvania lawmakers -- facing a
2010 funding gap -- are more likely to favor a severance tax on natural gas
production than approve a moratorium on drilling in the state's portion of the
Marcellus Shale.
Pennsylvania Representative Phyllis Mundy, a Democrat, on Monday said she
would introduce a bill calling for a one-year moratorium on new gas drilling
permits in the state over concerns that the activity affects drinking water.
Pritchard Capital Partners said that Mundy's bill will not likely make it
through the state's Republican-controlled Senate, although "[m]edia pressure
in response to three recent Marcellus Shale blowouts in the state has been
significant."
The Pennsylvania Department of Environmental Protection is still
investigating the cause of the blowouts.
The Pennsylvania counties not seeing the benefit of Marcellus shale
revenues are likely to fight its development, as in BP's uncontrolled Macondo
well spill in the Gulf of Mexico is drawing attention to environmental
concerns, Pritchard noted. But the firm also said that Pennsylvania, with a
$500 million funding gap in 2010, "will likely institute a severance tax of 5%
in exchange for no moratorium."
Pritchard said that there are no proven instances of contamination from
the hydraulic fracturing process used in gas drilling in shale formations, but
"potential contamination from drilling may mean industry is forced to cement
drill pipe from top to bottom of a well. That could add an additional $150,000
to the well cost and shave 1%-2% from returns of 35% at $5/Mcf NYMEX gas
prices. A severance tax would have a similar impact."
Jefferies & Company Analyst Subash Chandra said the push for a drilling
moratorium could give Pennsylvania Governor Ed Rendell "greater leverage to
get a production tax bill passed," He pointed out that the Pennsylvania House
of Environmental Resources and Energy Committee approved a new severance tax
bill Monday.
Committee Chairman Camille "Bud" George, a Democrat from Clearfield
County, said Monday the panel approved a retooled severance tax that
simplifies the levy and addresses concerns about revenue distribution. The
base and beginning tax rate would be 35 cents for every Mcf recovered.
These developments "could give the governor greater leverage to get a
production tax bill passed," he said. Even with a new tax, he said, the
Keystone state's Marcellus operations "should still be the most economic gas
play under development."
Tudor, Pickering, Holt Securities noted "anti-fracking, anti-drilling
talk getting louder" because of Mundy's proposals. Pickering said that it
would be "most disturbing" to see a one-year halt to new drilling, adding that
it is a "far cry from introducing legislation to getting it passed."
Financial analysts Wednesday said that Pennsylvania lawmakers -- facing a
2010 funding gap -- are more likely to favor a severance tax on natural gas
production than approve a moratorium on drilling in the state's portion of the
Marcellus Shale.
Pennsylvania Representative Phyllis Mundy, a Democrat, on Monday said she
would introduce a bill calling for a one-year moratorium on new gas drilling
permits in the state over concerns that the activity affects drinking water.
Pritchard Capital Partners said that Mundy's bill will not likely make it
through the state's Republican-controlled Senate, although "[m]edia pressure
in response to three recent Marcellus Shale blowouts in the state has been
significant."
The Pennsylvania Department of Environmental Protection is still
investigating the cause of the blowouts.
The Pennsylvania counties not seeing the benefit of Marcellus shale
revenues are likely to fight its development, as in BP's uncontrolled Macondo
well spill in the Gulf of Mexico is drawing attention to environmental
concerns, Pritchard noted. But the firm also said that Pennsylvania, with a
$500 million funding gap in 2010, "will likely institute a severance tax of 5%
in exchange for no moratorium."
Pritchard said that there are no proven instances of contamination from
the hydraulic fracturing process used in gas drilling in shale formations, but
"potential contamination from drilling may mean industry is forced to cement
drill pipe from top to bottom of a well. That could add an additional $150,000
to the well cost and shave 1%-2% from returns of 35% at $5/Mcf NYMEX gas
prices. A severance tax would have a similar impact."
Jefferies & Company Analyst Subash Chandra said the push for a drilling
moratorium could give Pennsylvania Governor Ed Rendell "greater leverage to
get a production tax bill passed," He pointed out that the Pennsylvania House
of Environmental Resources and Energy Committee approved a new severance tax
bill Monday.
Committee Chairman Camille "Bud" George, a Democrat from Clearfield
County, said Monday the panel approved a retooled severance tax that
simplifies the levy and addresses concerns about revenue distribution. The
base and beginning tax rate would be 35 cents for every Mcf recovered.
These developments "could give the governor greater leverage to get a
production tax bill passed," he said. Even with a new tax, he said, the
Keystone state's Marcellus operations "should still be the most economic gas
play under development."
Tudor, Pickering, Holt Securities noted "anti-fracking, anti-drilling
talk getting louder" because of Mundy's proposals. Pickering said that it
would be "most disturbing" to see a one-year halt to new drilling, adding that
it is a "far cry from introducing legislation to getting it passed."
