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Proposed permit fee increase in Pennsylvania not expected to slow drilling in state

Houston (Platts)--4 Jun 2018 246 pm EDT/1846 GMT


Industry and state leaders agreed that a plan by Pennsylvania regulators to more than double permit fees for unconventional wells would likely not put a damper on producers' plans to continue to drill and produce gas from the prolific Marcellus shale play.

A proposed rulemaking, which the state Department of Environmental Protection has submitted to its Environmental Quality Board, would increase current well permit application fees to $12,500 for all unconventional wells from $5,000 for non-vertical unconventional wells and $4,200 for vertical unconventional wells.

DEP contends that the proposed fee increases are needed to fund its efforts to regulate the oil and natural gas industry and pay for the department to augment its Oil and Gas Division staff, which has been stretched thin by the drilling boom in the Appalachian shale.

The proposed fee increase is part of a package of reforms to the drilling permit regulatory scheme that Governor Tom Wolf announced in January, and which he is expected to roll out later this year.

Scott Robert, a regulatory consultant for the Pennsylvania Independent Oil and Gas Association, said raising the permit fee on individual wells would likely have a minimal effect on a producer's bottom line. "I don't think it's going to make or break people's decisions" as to whether or not to drill, Robert said in an interview.

But he said regulators should ensure that monies collected from the fee increase go the DEP's Oil and Gas Division and are not used to fund other DEP programs, such as those for clean water or clean air. He also called for "a fair and independent analysis" of the financial effect of the proposed fee increase. According to a state analysis, the proposed fee increase would result in an additional annual increased cost to the industry of $15 million. This compares with the average cost of $8 million to drill a single unconventional well in Pennsylvania.

"An increase of $7,500 to a flat fee of $12,500 for an unconventional well represents .001% of the overall cost to drill a well and will have no impact on Pennsylvania's competitiveness with other states," the DEP analysis says.

FEE HIKES NOT EXPECTED TO GO INTO EFFECT UNTIL NEXT YEAR AT LEAST

In any case, the permit fee increase is not likely to go into effect any time soon.

Under the time line for the rulemaking, the state attorney general's office must approve the regulatory language of the proposed order for publication in the State Bulletin, DEP spokesman Neil Shader said. Once the rulemaking is published, there will be a 30-day comment period. The final rules are expected to be approved some time in 2019 or 2020.

In documents outlining the need for the fee increase, the DEP said that in recent years it has had to dip into the state's Well Plugging Fund to make up for funding shortfalls not covered by revenues collected through permit fees and the state's gas drilling impact fee. Given expected project cost increases and declining revenues, the department expects the Well Plugging Fund to be insolvent by fiscal year 2019-20.

Meanwhile, as the workload to oversee the state's rapidly growing oil and gas industry has expanded, the DEP itself and its Oil and Gas Division have shrunk. Since 2006, the department's total staff has been reduced 43%, according to DEP's earlier statement on the fee increase.

"The Oil and Gas Program reduced staff over the past few years from 226 employees to 190 employees today," the department said in its current documents. "The Oil and Gas Program is currently challenged to provide an adequate level of service to the public and to the oil and gas industry."

When the comment period opens, representatives of the oil and gas industry are expected to come out strongly in opposition to the permit fee increases, challenging them as unnecessary burdens on an industry still struggling to recover from the recent price-related downturn.

"We haven't developed an official statement, but we definitely don't agree with it. We feel that we pay enough fees as it is," PIOGA President Dan Weaver said in an interview.

DEP SHOULD MANAGE ITS RESOURCES BETTER: WEAVER

Weaver said the DEP should do a better job of managing its resources, particularly in the Oil and Gas Division, rather than continually turning to the oil and gas industry for increased funding.

"Maybe we should look at why they have 190 employees under that division. It was different when we had 112 rigs running ... we now have 39," he said.

"They should do what most businesses do, look at shifting resources," Weaver said. "They've lost 36 people. We're dealing with companies that have lost thousands of people."

He said much of the funding for DEP goes to hiring water- and air-quality specialists, whose duties pertain to other industries besides oil and gas. "Why not increase the permit fees across the board for all industries?" he asked. --Jim Magill, jim.magill@spglobal.com

--Edited by Valarie Jackson, newsdesk@spglobal.com




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