Natural gas drilling changing real estate

 

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Experts: Marcellus Shale will impact entire state

DALLAS TWP. — The natural-gas producing Marcellus Shale will have a massive effect on nearly every county in Pennsylvania, becoming a vital contributor to the economy that will affect other industries, experts agree.

“Pennsylvania could become the OPEC of natural gas in the nation,” said Ray Walker, vice president of Appalachian Shale, the largest natural gas producer in the state. “This is the biggest thing I’ve ever heard of in this industry, and I’ve got 35 years in it.”

Drilling for oil and gas is nothing new in the state, but the scope of the Marcellus Shale deposit — possibly one of the nation’s largest — and the technology involved in accessing it are. With natural gas companies aggressively leasing properties, state lawmakers have to think fast about details from how much to regulate the industry to whether gas production should be taxed, possibly as a form of school property tax relief.

A panel of Republican state senators mulled testimony on Tuesday at a well-attended hearing hosted by Misericordia University. Speakers included natural gas professionals, some from the Barnett Shale deposit in Texas, and representatives from state agencies and non-profit research organizations.

The Marcellus Shale play, as the industry refers to it, has the potential for economic impact totaling $7.1 billion and creating 26,559 full- and part-time jobs with higher than average wages, said Kathryn Z. Klaber, executive director of the southwest office of Pennsylvania Economy League.

For a long time, accessing shale gas was considered too difficult, but new technology for horizontal drilling changed that, according to John Hanger, acting secretary of the state Department of Environmental Protection.

Development of Marcellus Shale is still in the early stages, but there has been a steady increase in interest, Hanger said. In 1999, there were 2,017 oil and gas permits issued, he said. This year a record 6,860 were issued so far, 566 permits exclusively for the Marcellus Shale, Hanger said.

Natural gas companies use a process called hydraulic fracturing to break up the shale. It requires millions of gallons of water, which is treated with chemicals and picks up more in the process. This “frac fluid” must be put in impermeable tanks and taken for treatment, Hanger said.

“Disposal of the water I think is the single biggest challenge,” he said. “Water source issues are also serious, but disposal is the biggest problem.”

Pennsylvania’s geology is not as good as Texas’ for injecting wastewater underground, Hanger said. And there is a limit on how much frac fluid can be treated, he said.

When applying for a permit, companies must list sources and locations of water, whether from a well, stream or public system, and receive permission from the appropriate river basin commission to use it, Hanger said. They must also identify where water will be treated and disposed of.

The companies must disclose the names of all chemicals stored at the drilling site, as well as keep a plan in the event of their release on file with DEP and local emergency responders, Hanger said.

Sen. Mary Jo White, R-Franklin, Venango County, fears gas companies will seek sites in other states if Pennsylvania lawmakers place too many regulations on natural gas operations. She said she ran for the Senate because she was angry at the state for over-regulating the industry, and is concerned the permit process is so complex it will discourage drilling.

“We have to find appropriate balances here, especially protecting water,” Hanger said. “On the other hand, imposing any cost does impact the ability of industry to operate here.”

EXCO-Northeast President Wendy Straatman estimates Marcellus Shale producers have poured more than $2 billion in leases alone.

“These land leases represent the tip of the iceberg compared to what we as an industry are prepared to invest in Pennsylvania,” she said. “However, the uncertain regulatory and legislative environment, including permitting delays unlike any we’ve ever seen in other states, forced us to put these investments on hold.”

Straatman asked why she

should spend so much time filling out a 20-page permit application, when it is easier to move her company’s rigs to West Virginia. She urged legislators to proceed cautiously during the early stages of Marcellus Shale development, especially in regards to regulation and taxes.

But municipal and school district officials, faced with rising costs and falling revenue, want legislation to tax gas and oil production. They have been unable to do so since 2002, said Dan Fisher, superintendent of Centre County’s Bald Eagle Area School District.

“Pennsylvania stands alone in not taxing the production of natural gas,” he said.

Imposing a tax on gas production could be a meaningful way of reforming property taxes, according to Fisher and Tim Allwein of the Pennsylvania School Boards Association.

Many of the poorest school districts are located in the Marcellus Shale region, and revenue from natural gas would provide them with an alternate source of funding, Allwein said.

He admitted the state needs to be careful, noting, “we don’t want to kill the golden goose.”

Texas has a 7.5 percent tax on natural gas production — but that doesn’t scare companies away, according to Will Brackett, managing editor of the weekly Powell Barnett Shale newsletter. Unlike Pennsylvania, which has higher business taxes, Texas is a low-tax state; it doesn’t even have an income tax.

eskrapits@citizensvoice.com, 570-821-2072

BY JOSH MROZINSKI
WYOMING COUNTY BUREAU CHIEF

The natural gas industry is having a lasting effect on the real estate industry in Northeastern Pennsylvania.

Not only has speculation on the potential of the Marcellus Shale helped to increase land values, natural gas leases have also affected the sale of parcels. Some people have received less for their land when sold without a natural gas lease, said Flo Wester-Simons of Century 21 Mitchell in Montrose.

“Whoever buys land wants to get the royalties,” Wester-Simons added.

She said people don’t want to buy land and pay higher taxes due to drilling without receiving royalty payments.

Royalties can also be split between the property seller and buyer.

“Most everybody is retaining a portion of the royalty,” said Patricia Furneaux of Endless Realty in Tunkhannock.

In Northeastern Pennsylvania, leases are being sold with royalties of at least 16 percent. Property sellers and buyers are also considering the length of a natural gas lease, which sometimes extends for as much as five years. Furneaux said people retain leases when they sell their land in hope of renewing the lease at a higher price.

In the last six months, the number of properties for sale with gas leases has increased, according to Furneaux.

Gas leases often accompany large parcels, she said.

Furneaux sells properties in Susquehanna and Wyoming counties.

“Gas leases have driven the values of land way up,” Furneaux said. “People are paying to get land, in hope of getting a gas and oil lease on it.”

Furneaux said she has yet to sell property with a drilling rig, however.

Wyoming County Chief Assessor Eric Brown said drilling could cause property to be assessed at higher values and that could mean higher taxes.

Noting that it would not be fair if a new property owner did not have mineral rights, Brown recommended people attempt to get 50 percent of the lease’s royalty.

jmrozinski@timesshamrock.com