Imposing more taxes on record amounts of natural gas from Pennsylvania wells would harm an industry squeezed by low prices and insufficient infrastructure, the CEO of the state’s most prolific driller said Monday.
Some major energy companies reduced drilling activity in the state because a glut of Marcellus gas lowered prices to half of that seen in other parts of the country, Range Resources Corp. CEO Jeffrey Ventura told Tribune-Review reporters and editors.
An extraction tax like that proposed by gubernatorial front-runner Tom Wolf, on top of the per-well fee they’re paying to the state, could push big companies to other shale plays, Ventura said.
“I think you’ll see companies like Range or some of the smaller people stay pretty active, but at the end of the day, it clearly will impact the play overall,” he said.
The pipes and processing facilities needed to move gas and related liquids from wells to good-paying markets are at least two years away from catching up with supply, Ventura said.
“Until that infrastructure works itself out and demand catches up with supply, there’s a huge negative basis,” he said, noting that gas that fetches $4 per thousand cubic feet at major pipeline points gets only $2 coming out of Pennsylvania.
Adding taxes would put producers here at a competitive disadvantage, Ventura said. It threatens money that drillers pay to communities, including a combined $640 million in per-well impact fees over three years and $1 billion on roads over the past decade.
Republican Gov. Tom Corbett, who trails Wolf, a York County Democrat, in most polls before the Nov. 4 election, opposes adding taxes on the industry.
A spokesman for Wolf did not return a call for comment. When he outlined some plans for gas tax money to the Trib in August, Wolf acknowledged that the price difference issue would require some review.
Ventura’s comments mirror concerns expressed by several energy company leaders recently. Randy Cleveland, president of XTO Energy, the nation’s largest gas producer, last month cited the potential tax as one of the top challenges facing the industry.
“It’s got to be competitive,” Cleveland told the Trib. He noted that pipeline companies are “playing catch-up” to get infrastructure in place.
New pipelines would help get gas and related liquids to new power plants, recently approved export terminals and a growing number of petrochemical plants such as the one Royal Dutch Shell is considering in Beaver County.
Ventura, a Penn Hills native, said he hopes Shell builds a so-called cracker plant here and noted the company would provide it with ethane. But Range has a plan to triple its production in the next four years, mostly from the Marcellus and underlying Utica shale.
The Fort Worth-based company, which built a regional headquarters in Cecil, was the first company to tap the Marcellus successfully in 2004. According to the latest state figures, it drilled the most wells in Pennsylvania and was the third-largest producer in the state in the first six months of 2014.
Its early presence in the shale allowed Range to sign lucrative contracts on existing pipelines, especially for shipment of ethane, he said. And the company holds what it considers some of the most valuable land leases above several shale layers.
“A lot of the growth going forward will be in Southwest PA,” he said, noting internal studies that show the highest concentration of gas and liquids below Washington County.
Infrastructure problems have caused some setbacks for Range this year. Shutdowns of a processing facility in Washington County — both planned and unplanned — limited some production for several weeks. Chronic leaks at some of its older well site impoundments — huge, earthen pools built to hold fracking water between uses at several wells — led to a $4.15 million state fine last month and an agreement with the state to improve its designs.
Environmentalists say that experience shows Range and other companies should abandon the use of such impoundments in favor of closed-tank systems.
“We don’t understand why Range won’t shift over to other available technologies that would allow for better protection of the water and land,” said Myron Arnowitt, state director for Clean Water Action.
Ventura said Range will shift to using fewer impoundments in more centralized locations with leak detection systems above state standards while it recycles fracking water.
“Now we understand the field better,” he said, noting the company has redesigned the pits about five times. “Our team is focused on the best solution, and at this point they’re the right answer.”