The following article was published in the Rocket-Courier on April 7, 2016. Republished here with permission.
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BY CAIN CHAMBERLIN
With the decline in natural gas operations following the massive industry boom that occurred in northeastern Pennsylvania several years ago, it’s anyone’s guess as to when it will return.
There are many theories and speculations regarding the future of natural gas production in this area, but an industry insider, as well as a local elected official who keeps himself up to date with Marcellus shale activities, recently sat down with the Rocket-Courier to provide an indepth analysis and share their thoughts on the topic.
As its Director of External Affairs, George Stark is considered the face of the Cabot Oil & Gas Corporation in Susquehanna County. After earning a degree in Political Science from Dickinson College, Stark worked in various public relations and governmental affairs positions throughout the state, including stints with the PA House of Representatives and, prior to joining Cabot, Columbia Gas.
Stark was accompanied by Bradford County Commissioner Doug McLinko, who has educated himself on the subject of natural gas through dozens of sources, seminars, conventions and legislative hearings since it came to northeastern PA roughly eight years ago.
Where Has it Gone?
If you ask Stark whether he believes the industry is coming back to northeast PA, he’ll tell you: “With vengeance.”
“What you have to remember is we’re sitting on a reservoir here that is second to none. It’s not going anywhere,” he said. “So, the idea that the industry isn’t coming back could not be further from the truth. We see ourselves drilling wells for the next 30 years…and that’s just what we know today.”
Stark said those wells could produce natural gas for the next 45 to 50 years or more.
“We’re talking about 80 years of a resource we weren’t even having conversations about in this area 12 years ago,” he said.
Stark believes those many decades will provide science the time it needs in finding new, sustainable modes of energy.
To put the vast abundance of natural gas into perspective, Stark said when drilling operations first began in northeast Pennsylvania, companies would have been content with just one billion cubic feet (BCF) of natural gas from a solitary well, but have since discovered a pleasant surprise.
“A well that produced one BCF of natural gas would have been a home run. We started out in the neighborhood of getting eight BCF from a well,” he said. “Our number for this year— where we are on production from a single well over its life— is 28 BCF.”
He said the issue at hand is a need for more pipelines to transport the gas and a rebound in the price of such gas, which walk hand in hand.
“Two things are, in essence, our opposition right now: low cost and a lack of infrastructure to move that natural gas. The low cost is really because of that lack in infrastructure,” he said. “Yes, natural gas is already low cost to begin with. When you compare us to other fuel choices, we are the most economical. But, if I thought a well was going to produce 8 BCF over its life and it now produces 27, 28 BCF, I have more product on the market, which lowers the price even more substantially. So, at some point, we’ve got to be able to sell it and make a profit.
“There’s so much natural gas on the market and not an ability to move it, the low price is the issue that holds it back from producing more,” he added.
He said this is why projects like the Constitution Pipeline, a 124-mile transmission pipeline project to connect abundant Appalachian natural gas supplies in northern Pennsylvania with major New England markets, are so important. However, he said states like New York that benefit from natural gas have become a roadblock for transporting it. There is also the Atlantic Sunrise Project, which would connect northeastern Pennsylvania to markets in the Mid-Atlantic and southeastern states.
He said it can be costly converting to natural gas power, but the savings are observed almost immediately.
Stark noted in Susquehanna County, school districts like Montrose and Elk Lake that have alternated to natural gas heating and power have seen major savings. He said Montrose saved $120,000 in the winter of 2013, double what it was projected to save.
As for when the industry will return to the region with that vigorous vengeance he referred to, Stark is not exactly certain, as no one really is.
He said Cabot is a production company taking natural gas out of existing wells using a workforce of 90 percent local Pennsylvanians. “We’re here long-term,” he said.
He said companies like Halliburton, Baker-Hughes and Cudd Energy Services are also primarily made up of local help.
The decline in operations people have noticed is that of the truck traffic and new gas wells being drilled by hired contractors.
He said Cabot works just one drilling rig in Susquehanna County.
“When we go out, we don’t typically do our own drilling. We contract that work out,” he said. “Last year at this time, we had four drilling rigs.”
The Rocket-Courier recently wrote a piece about the dwindling gas industry’s effect on lodging, in which many hotels and motels around the county claimed their occupancy rates were down 60 to 90 percent since last summer. Other businesses have also experienced hardship due to the decline.
Stark encourages them to stay optimistic and hold out for the inevitable rebound.
“We are in a cycle. This is not the first downturn. There will be an end and we will bounce back in the industry. The price and production will increase,” he said.
Act 13 Funding
McLinko said the economic impacts that Act 13/Impact Fee funding has had on the region are nothing short of a blessing.
He said Bradford County alone has received approximately $28 million in Act 13 funds, which it has used to strengthen infrastructure, make a new commitment to economic development, support public services like volunteer fire companies and perform water and housing studies that will better local communities.
McLinko said Bradford County volunteer fire departments have received $300,000 per year over the last two years from Act 13, and a new 911 Center is in the planning stages.
“We’re on track to distribute $1 million to our fire companies,” said McLinko.
On the state level, a recent County Commissioners Association of Pennsylvania (CCAP) report states since the first impact fees in fall 2012, the revenue stream has generated more than $200 million annually for county and municipal governments. Stark said during that timeframe, Act 13 has brought roughly $825 million into the Commonwealth. By the end of 2016, he believes that figure will exceed $1 billion.
Act 13 also allocates certain amounts into the Pennsylvania Housing Affordability and Rehabilitation Enhancement (PHARE) Fund, which has allowed the county to afford housing complexes like the Gateway Commons project and Page Manor exterior restoration in Athens Borough, the Wyalusing Meadows project and the Meadows at Tiffany Pines in Montrose.
McLinko said there was a recent meeting with the Bradford County Planning Commission and Progress Authority who want to work with real estate, banks, and county municipalities to establish a new program that would assist first-time homebuyers that are employed and contribute to the local community into existing vacant housing. He said those who wish to utilize the program would need to meet certain requirements and pre-qualifications.
“This is not a gift, by the way, this is about strengthening our communities and getting first-time homeowners into homes because the banking industry has really tightened down a lot,” he said.
He said there are presently 200 vacant homes in the Athens and Sayre area with hundreds more throughout the county.
“We’ve done housing studies, and we have plenty of housing stock,” he said. “That’s why we want to work with bankers, real estate people, put our heads together and use that PHARE money to help working families.”
Stark said the natural gas industry was informed when it came to the area that housing would be limited.
“We were all told there would be a shortage of housing, so let’s put money toward it,” he said. “Whether it’s new housing or existing housing that’s put up to code and back on the market— it’s been impressive to see just that one piece of Act 13 benefits.”
McLinko said it’s important for residents to realize that everyone benefits from Act 13 funding. He noted the $3.1 million Bradford County Courthouse roof replacement project underway this month.
“That last roof wasn’t put on correctly back in the 20s, and it was a lot worse than we thought, so we would have had to replace that roof regardless and if it wasn’t for Act 13, the taxpayers would have taken on the burden,” he said. “We’re very blessed to have these gas companies and Act 13.”
Stark noted the Susquehanna County Courthouse also made improvements using Act 13 by replacing its heating system.
He said even though there aren’t many wells being drilled presently and the price of natural gas is low, the public need not worry about losing the impact fee. According to Stark, the price does not change the impact fee because it is based on a “per well cost.”
“It’s on a well that’s drilled,” he said. “They may not be producing gas, but they’re still producing the impact fee.”
He said Act 13 money kept many non-profit organizations and other entities alive during the state budget impasse when no one was receiving state funding.
McLinko said if Bradford County were ever to lose the benefit of Act 13, economic devastation would be soon to follow.
“If we lose Act 13, it would be catastrophic for us and our towns,” said McLinko. “It keeps taxes low, it helps the school districts, it helps the county, and I know that everyone in this county has been very conscientious about how they spend that money. We’re all very thankful for it.”
Stark said Cabot has already submitted its 2016 impact fees to the state, which were due in March. McLinko said Act 13 funding is typically awarded during the summer.
According to McLinko, businesses are ready to come to Bradford County because of natural gas. “We just have to get them here.”
Severance Tax
Gov. Tom Wolf’s proposed severance tax would take Pennsylvania from last place to first among major gas-producing states in taxing the extraction of natural gas. Stark said the proposed severance tax rate in the state has fluctuated rapidly over time, but claims the most recent figure he saw from the governor’s office was a 21 percent tax.
“That’s on top of all the other money, like corporate mandated taxes, fuel tax, Act 13, and operation costs, that we pay out,” he said. “To say we’re not paying our fair share—it’s just frustrating.”
He said the severance tax would not only have a dramatic impact on gas company operations, but the landowners and leaseholders as well.
“In addition to the Act 13 that comes back to the school districts, they are also landowners getting royalties. If severance tax comes along, who’s going to pay it? The landowner, i.e. the school district, would have to pay their portion because in most states, that is the case.”
He said the tax would then go to Harrisburg where the powers that be would decide its fate rather than the funding remaining in local school districts that need it.
McLinko said he doesn’t feel government at the state level has realized what a profoundly positive impact the gas industry has had on rural Pennsylvania and beyond.
“If they put a severance tax on, it’s going to be catastrophic for all across Pennsylvania, not just Bradford County,” said McLinko. “The severance tax would be unfair, not to mention kicking somebody when they’re down with taxes; it’s just irresponsible, but to pull that impact fee from rural Pennsylvania is unbelievably irresponsible.”
He urged residents to be vigilant and oppose the severance tax because it would not only eradicate impact fee funding, but also destroy jobs the industry has brought with it.
“Cabot’s workforce is 90 percent local. I can tell you, one of the coolest things about it early on was local people began to train up and now they’re working in the industry. So, if this severance tax passes, guess who it’s going to effect? It’s going to effect our locals.”
McLinko said residents should get involved and let their voices be heard.
“No matter what the discussion is in Harrisburg, the law is, if they pass the severance tax, the impact fee sunsets—end of discussion,” he said.
“Call your state and federal legislators and tell them northeast Pennsylvania wants to power the world.”
