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Table of Contents

EXECUTIVE EDITOR

Ray Booth9)VV[O'KP_JVT�JVT

CONTRIBUTING EDITOR

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“Gas & Oil” is a monthly publication jointly produced by Dix Communication newspapers across Ohio & PA. Copyright 2015.

Pete Kiko72PRV'[OL�KHPS`�YLJVYK�JVT

ART DIRECTOR

Andrew S. Dix(:+P_'KP_JVT�JVT

Andrew S. DixAndrew S. DixAndrew S. DixAndrew S. DixAndrew S. DixAndrew S. DixAndrew S. DixAndrew S. DixAndrew S. DixAndrew S. Dix

PUBLISHER

Rhonda Geer9.LLY'KP_JVT�JVT

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Christy Penland(JJV\U[�,_LJ\[P]L

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Ed Archibald(JJV\U[�,_LJ\[P]L

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ADVERTISING

Brad Tansey);HUZL`'KP_JVT�JVT

DIGITAL CONTENT MNGR

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Elizabeth Horne,OVYUL'[OL�KHPS`�YLJVYK�JVT

LAYOUT DESIGNER

BRAVO GROUP LAUNCHES IN TEXAS

NATURAL GAS TAXES: A FAIR SHARE?

RULES FOR CHEMICAL DISCLOSURE

PRESSURE FOR TOUGHER SAFETY RULES

ETHANOL MANDATE

FEES CONTINUE TO HELP COMMUNITIES

INNOVATIVE THINKING GENERATES BUSINESS

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HARRISBURG, PA – Bravo Group, one of the largest independent advocacy and communica-tions firms based in Pennsylvania, announced

today that it intends to expand its presence into Texas to better serve its clients, particularly those in the energy in-dustry.

“For energy companies based in Texas that need advoca-cy and public relations representation, Bravo Group is the clear choice,” said Chris Bravacos, CEO of Bravo Group.

Bravo Group is strategically positioned in two of the largest natural gas basins in the United States - the Marcel-lus and Utica shale basins. The firm’s energy clients include Sunoco, Inc. and Sunoco Logistics Partners, Cabot Oil and Gas, NRG, Southwestern Energy (SWN), Philadelphia En-ergy Solutions (PES), UGI Energy Services (UGIES), En-vironmental Quality Company (EQ) and DOW Chemical. Bravo Group has handled advocacy and public relations for significant pipeline infrastructure projects completed and being constructed in Pennsylvania, Ohio and West Vir-ginia.

Bravo Group also manages the Pennsylvania Chemical Industry Council (PCIC), a trade and advocacy group that includes more than 40 chemical companies that support the completion of new infrastructure to connect natural gas production to both new and existing markets.

David Webster, president of Dallas-based Aberdeen Strategies, will serve as Senior Advisor to Bravo Group, providing high-level strategic counsel and expertise.

“Bravo Group represents the energy industry across the entire spectrum, from exploration and production compa-nies to midstream and end users,” said Topper Ray, presi-dent of communications for Bravo Group, which has of-fices in Pittsburgh, Harrisburg and Philadelphia. “Having a Texas presence is a natural next step for our firm, and we are pleased to be taking that step with David Webster.”

Adam Pope, leader of Bravo Group’s Pittsburgh office energy practice, said, “David Webster brings a comprehen-sive understanding of the specific challenges and hurdles that energy companies face. These are complicated regula-tory and political dynamics, and our team looks forward to working with David to provide solutions for our clients.”

Webster brings more than 30 years of experience as a se-nior communications professional who has advised CEOs and senior leadership in mergers and acquisitions, repu-tation management, building performance cultures, man-aging transformational change, proactive public relations, crisis management, and investor and government relations.

“I’m ready to help Bravo Group establish the firm’s pres-

ence in Texas,” said Webster. “Bravo’s team has a proven track record of results for energy companies and has been working in two of the largest natural gas producing fields in the nation. They have the talent that allows them to gen-erate support, move quickly and communicate clearly in the most difficult regulatory, political and marketplace en-vironments.”

Webster also will continue to run his communications consulting firm, Aberdeen Strategies, while serving in this advisory role to Bravo Group and its clients. Before founding Aberdeen Strategies, David served as chief com-munications officer and head of public affairs for Sunoco, Inc., leading the iconic energy company’s public affairs and communications outreach efforts as it restructured and ul-timately was acquired in 2012.

Before Sunoco, Webster led communications for Centex Corporation and Regions Financial Corporation. David also served as senior vice president of business affairs at Chase Card Services, one of the world’s largest issuers of credit cards. While at JPMorgan Chase, he and his team created co-branded product and media relations cam-paigns in partnership with brands like Disney, Southwest Airlines, and Starbucks. Earlier in his career, David held senior communications positions at Bank One, First USA and Pennzoil Company. David has a master’s degree in communication from Regent University and is the found-ing chair of the Communications Advisory Council at the College of Charleston. He is also a former member of the Arthur Page Society.

For any questions please contact Kelley Denny at [email protected] or (412) 352-9240

About Bravo GroupWith offices in Pittsburgh, Harrisburg and Philadelphia,

Bravo Group helps clients Win Tough Fights™ with a cam-paign-style approach to public relations and advocacy. This integrated approach allows for faster, more cohesive solu-tions and puts clients in the best position to achieve results often in the most difficult public, political and regulatory environments. For more information, visit www.thebravo-group.com.

About Aberdeen StrategiesAberdeen Strategies provides strategic communications

advice and tactical communications support to public cor-porations and private businesses. The firm specializes in providing interim communications management services as well as public relations, corporate communications and crisis communications counsel. For more information, visit www.aberdeenstrategies.com.

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By Elizabeth Stelle

Proponents of a natural gas severance tax often claim Pennsylvania is the only top natural gas producing state

that doesn’t tax drilling. But this argument misses the big picture. Pennsylvania taxes the natural gas industry in many ways that don’t exist in other drilling states. For example, there is no corporate income tax or personal in-come tax in Texas or Wyoming, and the corporate income tax in West Virginia is 6.5%, compared to Pennsylvania’s 9.99% rate.

The chart to the left demonstrates that Pennsylvania’s economy is far less inviting to natural gas development, even absent a severance tax.

Despite Pennsylvania’s poor business environment, Governor Wolf has proposed a 5% natural gas severance tax beginning in 2016. The administration is banking on roughly $1 billion in revenue, primarily for education, dur-ing the fi rst full year of the tax. But low natural gas market prices have placed doubt on the governor’s revenue pro-jections.

Not to be undone by market realities, the administration has recently proposed a tax fl oor. In other words, the tax would be accessed on no less than $2.97 per Mcf, regard-less of the real market price. The volume-weighted average price in the Marcellus region for last year was $2.62 a unit, according to SNL Financial.

The reality is our education woes stem from our broken funding system, not a lack of education dollars. In fact, Pennsylvania’s public schools spend $3,000 more per stu-dent than the national average. The governor’s drive to improve Pennsylvania public education is admirable, but singling out one industry for a special tax will not help schoolchildren. Instead, it will drive away future job op-portunities for those same students.

Elizabeth Stelle is the Director of Policy Analysis for the Commonwealth Foundation.

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1 Texas 7.5% of market value Rate reduction appr. 2% for up to 10 years none 7.5% / 47

Top Natural Gas Producing

States 2013

Severance Tax on Natural Gas

Exemptions and Incentives for

Unconventional Wells

Top Corporate

Net Income

Tax Rate

State and Local Tax Burden

(as a percentage of State income/

national rank)

3 Louisiana $0.03-0.13 per MCF

Severance tax suspension on horizontally drilled well for 2 years or until

payback

8% 7.6% / 46

4 Oklahoma 7% plus 0.095% excise tax

Exempt from severance tax for 4 years or until

gas production pays for the cost of the well

6% 8.5% / 39

5 Wyoming 6% of taxable valueGas transportation costs

subtracted from the taxable value

none 6.9% / 50

6 Colorado 2% - 5% based on gross income

Allows producers to deduct 87.5% of their property taxes paid to

gov. from severance tax to state

4.63% 9% / 32

7 New Mexico 3.75% 7.3% 8.6% / 37

8 Arkansas 5%

1.5% on new discovery wells for 24 months

and on high cost wells for 36 months (can get

extension)

6.5% 10.3% / 12

11 Alaska 25% - 50% net value

Reduction for all drilling in Cook Inlet basin and

when gas in used in state; Limited tax credits

for exploration

9.4% 7% / 49

12 Kansas 8% on gross value severed from earth

3.67% tax credit for ad valorem taxes paid,

eff ectively reducing the severance tax to 4.33%

7% 9.4% / 26

13 California <0.01 per MCF 8.84% 11.4% / 4

9 West Virginia 5% + $0.047 per MCF 6.5% 9.7% / 19

10 Utah 3% - 5% 6 months exemption for development wells 5% 9.4% / 28

2 Pennsylvania 2.1%* 9.99% 10.3% / 10

*Pennsylvania levies an impact fee (akin to a tax) based chiefl y on the number of natural gas horizontal wells. Sources: Energy Information Administration, Independent Fiscal Offi ce, Tax Foundation


8�6��VKIJVGPU�TWNGU�HQT�EJGOKECN�FKUENQUWTGMATTHEW DALY and JOSH LEDERMANAssociated Press

WASHINGTON (AP) — On March 20, the Obama administration said it is requiring companies that drill for oil and natural gas on

federal lands to disclose chemicals used in hydraulic frac-turing, the first major federal regulation of the controver-sial drilling technique that has sparked an ongoing boom in natural gas production but raised widespread concerns about possible groundwater contamination.

A rule to take effect in June also updates requirements for well construction and disposal of water and other fluids used in fracking, as the drilling method is more commonly known.

The rule has been under consideration for more than three years, drawing criticism from the oil and gas industry and environmental groups alike. The industry fears federal regulation could duplicate efforts by states and hinder the drilling boom, while some environmental groups worry that lenient rules could allow unsafe drilling techniques to pollute groundwater.

Reaction to the rule was immediate. An industry group announced it was filing a lawsuit to block the regulaion and the Republican chairman of the Senate Environment and Public Works Committee announced legislation to keep fracking regulations under state management.

The final rule hews closely to a draft that has lingered since the Obama administration proposed it in May 2013. The rule relies on an online database used by at least 16 states to track the chemicals used in fracking operations. The website, FracFocus.org, was formed by industry and intergovernmental groups in 2011 and allows users to gath-er well-specific data on tens of thousands of drilling sites across the country.

Companies will have to disclose the chemicals they use within 30 days of the fracking operation.

Interior Secretary Sally Jewell said the rule will allow for continued responsible development of federal oil and gas resources on millions of acres of public lands while assur-ing the public that “transparent and effective safety and environmental protections are in place.”

Jewell, who worked on fracking operations in Oklahoma long before joining the government in 2013, said decades-old federal regulations have failed to keep pace with mod-ern technological advances.

“I’ve personally fracked wells, so I understand the risk as well as the reward,” Jewell said. “We owe it to our kids to get this right.”

Fracking involves pumping huge volumes of water, sand and chemicals underground to split open rocks to allow oil and gas to flow. Improved technology has allowed energy companies to gain access to huge stores of natural gas un-derneath states from Wyoming to New York but has also raised widespread concerns about alleged groundwater contamination and even earthquakes.

The Interior Department estimated the cost of comply-ing with the rule would be less than one-fourth of 1 percent of the cost to drill a well.

Despite that assurance, the new rule drew immediate criticism from energy industry representatives and con-gressional Republicans, who warned it could disrupt the yearslong energy boom in the U.S.

“This administration never misses a chance to appease radical environmentalists,” said House Speaker John Boehner, R-Ohio.

The new rule amounts to “regulating a process that is al-ready properly regulated” by states, Boehner said. “Mean-while, the people who work hard every day to produce American energy safely and reliably will have to bear needless costs and headaches.”

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Two groups, the Independent Petroleum Association of America and the Western Energy Alliance, fi led suit in federal court in Wyoming seeking to block the rule. The suit claims the rule would impose unfair burdens that will “complicate and frustrate oil and gas production on fed-eral lands.”

Sen. James Inhofe, R-Okla., chairman of the Senate envi-ronment panel, introduced a bill to keep regulations under state management, saying the new rule “adds unnecessary, duplicative red tape that will in turn make it more costly and arduous for our nation to pursue energy security.”

The League of Conservation Voters called the bill an important step forward to regulate fracking. Even so, the group was disappointed with the continued reliance on FracFocus, a private website that has taken on increasing prominence in recent years as it collects data on drilling sites.

The fi nal rule improves on previous versions, said Mad-eleine Foote, legislative representative for the conserva-tion league, but “it represents a missed opportunity to set a high bar for protections that would truly increase transpar-ency and reduce the impacts (of fracking) to our air, water and public lands.”

While the new rule only applies to federal land — which makes up just one-tenth of natural gas drilling in the Unit-ed States — the Obama administration is hoping the rule will serve as a model and set a new standard for hydraulic

fracturing that states and other regulators will follow.Brian Deese, a senior adviser to President Barack

Obama, said the rules for public lands could serve as a template that the oil and gas industry could adopt to help address the public’s concern about the health and safety of fracking.

“Ultimately, this is an issue that is going to be decided in state capitals and localities as well as with the industry,” he said.

The rule will make the Interior Department’s Bureau of Land Management the largest customer of FracFocus. Nearly 95,000 wells nationwide are registered with the site, which is managed by the Ground Water Protection Coun-cil and the Interstate Oil and Gas Compact Commission. Both groups are based in Oklahoma. The groundwater council is a nonprofi t organization while the oil and gas commission is a collection of state offi cials from energy-producing states.

Jewell said BLM will have representation on FracFocus’ board, adding that the group has taken steps to improve its platform, including adopting a new format that allows data to be automatically read by computers.

While Inhofe and other congressional Republicans are likely to mount an effort to block the rule, Jewell predicted the rule would survive because the industry recognizes that sensible regulation of fracking is appropriate.

“We expect that these rules will stick,” she said.

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JOAN LOWY - Associated Press

WASHINGTON (AP) — Fiery wrecks of trains hauling crude oil have intensifi ed pressure on the Obama administration to approve tough-

er standards for railroads and tank cars despite industry complaints that it could cost billions and slow freight de-liveries.

In February, the Transportation Department sent the White House draft rules that would require oil trains to use stronger tank cars and make other safety improvements.

Nine days later a 100-car train hauling crude oil and pe-troleum distillates derailed and caught fi re in a remote part of Ontario, Canada. Less than 48 hours later, a 109-car oil train derailed and caught fi re in West Virginia, leaking oil into a Kanawha River tributary and burning a house to its foundation. As the fi re spread across 19 of the cars, a near-by resident said the explosions sounded like an “atomic bomb.” Both fi res burned for nearly a week.

The two accidents follow a spate of other fi ery oil train derailments in the U.S. and Canada over the past few years. The most serious killed 47 people and destroyed the town center of Lac Megantic in Quebec, Canada, just across the border from Maine, in 2013.

The government hasn’t yet unveiled its proposed regula-tions. But among them are a stronger tank car design that includes thicker tank walls and electronically-controlled brakes that stop rail cars at the same time rather than se-quentially, said Brigham McCown, a Washington-based consultant who was head of the federal agency responsible for safe transportation of hazardous materials during Pres-ident George W. Bush’s administration.

Typically, safety regulators propose tough regulations and the Offi ce of Management and Budget, which looks at economic and other implications of the rules, demands they be scaled back. This time, however, there may be less resistance.

“The more incidents we have, the less likely the adminis-

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tration will be willing to listen to industry,” McCown said. “I think the railroad industry starts to lose credibility every time there is an accident.”

Kevin Book, an energy industry analyst, said it has be-come harder to imagine the administration accommodat-ing the industry.

The oil and rail industries want thinner tank walls — half an inch thick, instead of the 9/16ths-inch that regula-tors propose. The thicker the shell, the less oil a tank car can hold, and with about a half-million carloads of crude hauled by rail in the U.S. and Canada last year, the cost dif-ference could add up.

The tank cars in the recent accidents were built to a vol-untary standard written by industry in 2011 to answer criti-cism that cars used to transport fl ammable liquids were prone to rupture in an accident and spill their contents and ignite spectacular fi res. But the two most recent accidents show that the newer cars — known as 1232s — also are prone to rupture, even at slow speeds. Both trains were traveling under 40 mph.

“Those folks who were arguing that the 1232s may in fact be puncture-proof really can’t make that argument any-more,” Sen. Heidi Heitkamp, D-N.D., told reporters.

A Transportation Department analysis predicts that trains hauling crude oil or ethanol will derail an average of 10 times a year over the next two decades, causing more than $4 billion in damage and possibly killing hundreds of people if an accident happens in a densely populated part of the U.S.

Chris Hart, the acting chairman of the National Trans-portation Safety Board, urged federal regulators in a blog post this week to act swiftly to set new tank car standards, noting that while the government deliberates over new rules, more 1232 cars are entering service.

Industry offi cials say they need every car they can get to meet shipping demands, and it will take time for manu-facturers to retool for a new design. U.S. and Canadian of-fi cials also have not agreed on a phase-out period for the train cars that regularly cross their border.

Transportation Secretary Anthony Foxx told The Asso-ciated Press that administration offi cials understand the gravity of the issue and are committed to a “comprehen-sive approach” that includes better braking and slower train speeds, as well as enhancing the ability of fi re depart-ments to respond to accidents.

Railroads complain that electronically-controlled brakes would cost them $12 billion to $21 billion and that lower train speeds would back up other rail traffi c through much of the country, slowing freight deliveries and passenger service. Last year they agreed to reduce oil train speeds to 40 mph in high-population areas. Regulators have dis-cussed turning that voluntary limit into a requirement.

But former NTSB Chairman Jim Hall said that until safety is improved, oil trains shouldn’t be allowed to travel any faster than the typical school bus — about 25 mph.

Follow Joan Lowy on Twitter at http://www.twitter.com/AP_Joan_Lowy

Gas&Oil9

PROTECTINGOURPLANETXTO Energy respects and protects the environment. We meet or exceed government regulations and industry standards every step of the way. Every well we drill is custom designed based on the unique needs of the site to promote safety and minimize environmental impact. We constantly examine and improve our processes because to us, respecting and protecting our planet’s resources is the right thing to do. xtoenergy.com

RAIL SHIPMENTS 022715: Graphic shows crude oil and ethanol shipments by rail in U.S.; 2c x 3 inches; with BC-Oil Train Safety; KSV; ETA 3 a.m.

SOURCES: Association of American Railroads; Renewable Fuels Association

AP

Volatile fuels ride the railsIncreased shipments of ethanol and crude oil on U.S. railways are raising safety concerns amid recent derailments.

0

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400

600 thousand rail cars

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Crude oilEthanol

310,000

500,000

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(VJCPQN�0CPFCVGU.S. Senators Pat Toomey

(R-Pa.) and Dianne Fein-stein (D-Calif.) are work-

ing to repeal a law that drives up the cost of everything from gasoline to groceries.

The Toomey-Feinstein Corn Ethanol Mandate Elimina-tion Act of 2015, introduced today, abolishes the corn etha-nol mandate in the Renewable Fuel Standard (RFS). Sen. Jeff Flake (R-Ariz.) is also a cosponsor of the measure.

The RFS requires annual increases in the amount of renew-able fuel that must be blended into the total volume of gaso-line refi ned and consumed in the United States. However, the current statute effectively mandates the use of corn ethanol at the expense of other fuels. The requirement drives up the price of corn, products made from corn, livestock that feeds on corn, and many products on grocers’ shelves and in refrig-erators.

“The RFS requires fuel suppliers to blend millions of gal-lons of biofuels -- most often corn ethanol -- into the nation’s gasoline supplies. It drives up gas prices, increases food costs, damages car engines, and is harmful to the environment,” said Sen. Toomey.

“Under government mandates, refi ners -- such as ours in Trainer, Pa. -- are forced to make a choice: increase the etha-nol content in their fuel blends or pay a penalty by purchasing credits from energy traders.

“Once again, this is the government using corporate welfare to shower money on a favored industry and then send the bill to the general public. Labor leaders, businesses, and environ-mental groups have lined up to push back against this harmful regulatory regime.

“I am pleased to join with Sens. Feinstein and Flake to stop the RFS before more harm is done.”

“The federal mandate for corn ethanol is both unwise and unworkable. Our bill addresses that with a simple, smart modifi cation to the Renewable Fuel Standard program,” said Sen. Feinstein. “A signifi cant amount of U.S. corn is currently

used for fuel. If the mandate continues to expand toward full implementation, the price of corn will increase. According to the Congressional Budget Offi ce, that would mean as much as $3.5 billion each year in increased food costs. Americans living on the margins simply can’t afford that.

“Our infrastructure has a ceiling for the amount of corn ethanol that can be used, and we’re rapidly approaching it. Companies are physically unable to blend more corn ethanol into gasoline without causing problems for many gas stations and older automobiles. The mandate also pits corn ethanol against other renewable fuels, which has stunted the growth of environmentally-friendly advanced biofuels like biodiesel and cellulosic ethanol. Once the mandate for corn ethanol is gone, the RFS program will be able to focus on those fuels that best reduce greenhouse gas emissions and don’t compete with our food supply.”

Said Sen. Flake: “In 2005, Congress bought into the corn ethanol mandate for billions of dollars, and taxpayers have been stuck with a lemon ever since. Congress can no longer justify a policy that props up the ethanol industry at the ex-pense of taxpayers, consumers, the hungry, and the environ-ment. I am pleased to join my colleagues on both sides of the aisle in supporting the full and immediate repeal of the corn ethanol mandate.”

Background: The Renewable Fuel Standard, fi rst enacted in 2005, required refi ners and blenders to use 18.15 billion gal-lons of renewable fuel in 2014. More than 14 billion gallons of this total will be met by the use of corn ethanol, a level that will increase in subsequent years.

There are two key problems with continuing to mandate the consumption of more and more corn ethanol each year:

• Corn consumption: Approximately 40 percent of the U.S. corn crop is now used to produce ethanol, artifi cially infl ating food and feed prices while damaging the environment.

• Blend wall: As gasoline consumption declines, refi ners face a “blend wall” when the RFS mandate exceeds the limit at which ethanol can be blended into the fuel supply, deter-mined to be 10 percent of total gasoline consumption.

Gas&Oil10


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Joe Massaro - Energy in Depth

Over the past several months, there has been plenty of chatter about the oil and gas industry paying its “fair share”

in Pennsylvania. After looking at the recently re-leased impact fee revenue for counties and municipalities, one thing is certain: the industry is generating signifi cant tax rev-enue for the Commonwealth.

Tax revenues from the oil and gas industry in Pennsylvania come in the form of impact fees that fl ow directly into commu-nities that host development. Since its inception in 2012 a stag-gering $650 million has been collected for local municipalities throughout Pennsylvania.

On March 3, 2015, the Pennsylvania state Senate Environ-mental Resources and Energy Committee, and the Senate Local Government Committee held a joint public hearing to discuss impact fee dollars from oil and gas development on communities throughout the state. Local offi cials from around the Commonwealth convened in Harrisburg and spoke, fi rst hand, about the benefi ts this new revenue has brought to their communities.

Susquehanna County Commissioner, Alan M. Hall high-lighted the benefi ts of the impact fee dollars, stating:

“Susquehanna County is one of those few counties in the state where we have zero debt and our pensions fund is 100 percent funded. The county in also going through the growth of infrastructure in the communities, the distribution system of natural gas has begun in our communities giving homeown-ers and business owner’s energy savings. The county court-house and offi ce building is being converted to natural gas to provide heat. The court house was originally heated with 110 year old coal boiler and an oil fi red boiler the size of a medium size package truck… these changes are providing an energy effi cient, clean and healthy environment to the employees and tax payers.”

If the impact fee revenue wasn’t enough, Susquehanna County is also home to a brand new state of the art hospital which was made possible by donations from Cabot Oil and Gas.

Next up to speak was Charles O. Stowe, a Butler County township offi cial:

“The 33 townships in Butler County have used the Act 13 impact funds in a number of ways. Some have chipped, paved, resurfaced, and widened their roads. Others have replaced

culverts, replaced bridges, and implemented storm water im-provements on their roads. Other townships have updated equipment such as purchasing graders, trucks, a roller, high lift, a snow plow, and a tractor with a boom mower. Some are planning road improvements and bridge replacement proj-ects.”

Speaking next at the hearing was Anthony Ventello, Execu-tive Director of the Progress Authority of Pennsylvania:

“We are aware of the tremendous economic impact of natural gas exploration, through direct shale gas investment, purchasing of local services, goods, and substantial payment of taxes to our federal, state and local governments. We have experienced tax base expansion with new commercial and res-idential buildings. Our counties have 2 new hospitals improv-ing health care delivery and experiencing their 24/7 economic impacts. Taxable income has risen 19%, farming remains the strongest in the core Marcellus Counties, along with contin-ued investment in our diversifi ed local manufacturing sector.”

Interestingly enough, counties without shale development still receive the benefi ts of impact fee money. Lancaster Coun-ty, for example doesn’t have any Marcellus shale wells but still receives impact fee dollars. Speaking on behalf of the county at the Harrisburg hearing was Lancaster County Commission-er, Dennis P. Stuckey:

“We are not a shale gas county, as you know. But we are the benefi ciaries of the funds that have been distributed accord-ing to the formula, which we think is a very successful way to distribute funds to local communities… Lancaster County has about 1/7th of the total Ag production in the Commonwealth of Pennsylvania, a little over a billion dollars. So agriculture is very important to use and that’s where we felt the money should best go… This year we’ve taken about $940,000 of the impact fee open space fund that we have and committed that to agriculture preserve.”

These are just a few of the many success stories made pos-sible by the impact fee distribution provided by the natural gas and oil industry operating here in Pennsylvania – which are in addition to the over $2 billion in corporate and personal income tax revenue paid by the oil and gas companies in the past seven years. Those working in, and those benefi tting from the energy industry are hopeful for this mutually benefi cial relationship to continue unimpeded.

Joe Massaro is a spokesman for Energy in Depth – Marcellus

Gas&Oil11


John Lowe - Dix Communications

A versatile power system developed and patented by a Cambridge native has found a new niche out west in the gas and oil industry. With the

resurgence of that industry in eastern Ohio, Doug Moore-head likely will see his innovations applied in his home ter-ritory.

Moorehead’s company, FlexGen® Power Systems, has developed a solid state generator that is proving to be a solution for power needs in a host of applications, includ-ing the oil fields of the United States. The company name, FlexGen®, is a nod to its flexibility (it is a hybrid power system) as well as to its applicability to diverse venues. Not only is it suited to the gas and oil industry, the system can be found in industrial, marine, military and mining applica-tions.

A chief benefit of a FlexGen® system is its ability to handle transients, that is, power surges.

For example, the base load of a particular application may require 250 horsepower, but the application also may need the capacity to handle a sudden demand for power up to 1,000 or 1,100 horsepower. The FlexGen® can smooth out the glitches that may arise with those demand surges.

An operation without the ability to handle transients might experience operational delays or interruptions anal-ogous to “motorist traveling down Wheeling Avenue and catching every red light,” Moorehead said.

According to the company’s website, “the heart of Flex-Gen® Power Systems’ Solid State Generator is our pro-prietary Adaptive Control Technology. ACT monitors is-land grid AC or DC bus voltage, current and frequency at 0.1 millisecond intervals and dynamically manages energy storage charge and discharge, improving island grid re-sponse time by 100 times to deliver desired power quality across the full range of rated power settings.”

In other words, the system is capable of adapting to the unpredictable power demands that may be lobbed at it. By handling the transients, FlexGen® enables customers to decrease, by significant amounts, emissions and fuel and maintenance costs.

Moorehead was inspired to develop the FlexGen® sys-tem in large part by the power needs with which he be-came familiar while serving in the military.

A chemistry major while at the U.S. Naval Academy, Moorehead graduated from the academy in 1996 as an of-ficer assigned to the Sea Air Land force. After nine years as a SEAL, he attended the Massachusetts Institute of Technology where he earned a master’s degree, specializ-ing in materials science and engineering. His thesis was on advanced lithium batteries.

Moorehead and his colleagues are enthusiastic about ap-plying their product to the gas and oil industry.

“With all of the new development in oil and gas, it’s ex-citing,” he said. “We’re doing great.”

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Gas&Oil12


Joe Kuklis

In his fi rst six weeks in offi ce, Pennsylva-nia’s Governor Tom Wolf (D) proposed a new tax on the state’s production of natu-

ral gas. The Governor’s proposal levels a 5% sev-erance tax on natural gas drilled from Pennsylva-

nia wells, hoping to raise hundreds of millions for the state’s coffers and to offset costs of his new education plan.

The proposed tax takes an interesting form, dinging drill-ers not only based on both volume of gas produced but on the value of the gas produced, insulating the state’s expected proceeds from potential fl uctuation in gas prices. The tax lev-ies a 5% tax on the value of the gas and 4.7 cents per thousand cubic feet of gas extracted as it reads today.

However the battle over the adoption of this tax is just about to begin. Wolf’s historic election last November in defeating incumbent Governor Tom Corbett wasn’t the only change in Harrisburg leadership. The Republican majorities in both the House and Senate increased, making this fi ght undoubtedly more diffi cult for Wolf to win.

New leadership in the House and Senate also puts several additional wrinkles in play for a potential budget negotiation trade with the Governor. The House’s newly minted Speaker, Mike Turzai (R) also wants to see the State’s budget feature additional spending for education programs, but seeks fund-ing for education in part through the privatization of state’s current liquor stores. This is a diffi cult issue for the new Gov-ernor as it is widely opposed by most Democrats in the House and Senate as it runs counter to the powerful state unions that protect the many jobs and employees at the State liquor stores. Turzai will likely try to link the passage of his plan with the Governor’s in some way.

On the other side of the General Assembly, the Republi-

can majority in the Senate is also looking to solve the pension problems in the Commonwealth, another expensive ticket for the Governor to consider, and one that again runs afoul of some of the state’s most powerful unions. This issue is one that many states face. It is not unique to Pennsylvania, but is an issue that can no longer be ignored because of the budget im-plications it has moving forward.

Throwing an additional curveball at the Governor’s plan is the benefi ts that municipalities receive from the state’s impact fee. In 2012, then Governor Corbett enacted an impact fee in lieu of passing a severance tax through which local govern-ments in Pennsylvania secure millions on annual basis based on the amount of wells drilled in the Commonwealth. This im-pact fee would need to be replaced in some form by this new tax which invites criticism from local offi cials who depend on the receipts from these fees to balance municipal budgets or for funding for special projects.

One last complication for the Governor to consider is how to defend his plan from the Marcellus Shale Coalition, the powerful trade association responsible for defending the oil and gas industry in Pennsylvania. The coalition boasts some of Pennsylvania’s largest employers and will likely fi ght parts, if not all of the Governor’s plan.

To his credit, the Governor remains undaunted by the likely opposition he and his team will face in this legislative battle and continues to push for the adoption of this plan. The likeli-hood of passage remains in doubt but citizens of the Com-monwealth will have a better understanding of what lies in store for the oil and gas industry as the states fi scal year nears an end on June 30th. Budget season is just starting to ramp up in Harrisburg and this issue surely will be the hot button topic of the budget negotiations for 2015.

Joe Kuklis is the CEO of Wellington Strategies.

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Gas&Oil13


6[UVGO�FGXGNQRGF�

VQ�OCZKOK\G�ICU�[KGNFPITTSBURGH — Every entrepreneur wants to build

the better mousetrap. And, sometimes someone actu-ally does.

Tom Tonkins formed a new company in April 2014, Well Control Technologies, to manufacture two patented systems; a Well Management Center and a Down-hole Liquid Level Control system to operate primarily with conventional and coal bed methane wells. Two innovative systems proven to “manage and maximize gas and oil yield,” according to Tonkins.

“The Well Management Center separates production fluids and gas at the surface in one contained area, reducing the risk of methane and gas emissions and preventing freezing of pro-duction fluids, well packing and valves. Vapor extraction from fluids is also an integral part of the system, recovering gas that would normally be vented from production fluid storage tanks. The Well Management Center will eventually be used on horizontal wells, it is also possible, that with a modification of the technology, the Downhole Liquid Level Control system could operate with horizontal wells also,” he said.

The DLLC is a simple, patented two float system that con-trols production fluid in a gas well. The upper float mecha-nism is installed below the lowest gas seam, the lower float mechanism, just above the tubing fluid intake. They are typi-cally spaced 30-50 feet apart. This system provides direct real time control of production fluid levels. The same principle can also be applied to low producing oil wells. The DLLC can be retrofitted during a routine service of the well.

After three years of collecting data from prototype systems installed in CBM wells in Western Pennsylvania, the fledgling company is celebrating its first anniversary with its sales of its systems to CONSOL Energy.

Both products can be used separately or together on con-ventional wells, CBM wells and low-producing oil wells, con-

Gas&Oil14


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trolling well fluids in real time with vapor extraction from pro-duction fluids. Tonkins added that as technology matures, both units could be utilized in deeper horizontal wells.

Data collected from CBM wells have shown significant im-provement in gas yield. One of the test wells operating for four years showed an increase in gas yield after the DLLC was installed, from 40 Mcf/day to more than 200 Mcf/day.

“Both systems are environmentally friendly, the Well Man-agement Center prevents gas from being released into the at-mosphere when vapor extraction is incorporated. The DLLC prevents gas from entering the production fluid tubing down well, that can eventually collect in storage tanks and be re-leased to atmosphere. In addition to significant cost-savings which can be realized from less maintenance and service visits, with a return on investment in less than two to four years for both systems,” he said.

“There is a lot of room for improvement to increase gas and oil recovery from existing wells,” said Tonkins. “Our systems take the guess work out of well production fluid management, improve yield and reduce ongoing maintenance and service costs.”

WCT acquired the patents for the systems when Tonkins was involved in market research for CONSOL Energy, who originally owned the patents.

“I liked what I saw, basically made them an offer for the two sets of patents and raised private equity to buy them. The systems offer more effective well management for maximiz-ing gas or oil recovery while greatly reducing emissions and spillages.”

For more information about Well Control Technologies, vis-it wellcontroltech.com, email [email protected], or call 412.310.1449. [email protected]

Gas&Oil15

Phone: 412.310.1449www.wellcontroltech.com

Pittsburgh based

Well Control Technologies manufactures production fl uid

management systems for natural gas and low producing oil wellsgas and low producing oil wells

DLLC – Downhole Liquid Level Control takes the guesswork out of production fl uid management, reducing well visits, maintenance costs and increasing gas yield. US Patented Product.WMC – The Well Management Center manages gas and production fl uids at the wellhead, including vapor extraction. Eliminates emissions, prevents freezing and improves gas yield. US Patent pending.


Associated Press:Gov. Tom Wolf’s proposal to impose a severance tax on

Marcellus Shale natural gas production…would set a fl oor on the price at which the tax is calculated. The pricing fl oor is believed to be unique among states that impose a sever-ance tax on oil and gas production, and industry offi cials are pushing back. Prices are severely depressed by oversupply and a lack of pipelines to get gas to market, so gas is not selling for anywhere close to the proposed artifi cial mini-mum, they say. Wolf’s proposal calls for a 5 percent tax on the value of the natural gas pulled from the Marcellus Shale, plus a fl at fee of 4.7 cents per unit of gas. The proposal would require…no less than $2.97 per thousand cubic feet. (“Wolf

+KIJGT�(PGTI[�7CZ�3TQRQUCNU��:JCV�7JG[nTG�6C[KPIIt’s increasingly – if not alarmingly – clear that proposed higher energy

tax plans in Harrisburg, including the governor’s proposal: 1) do not refl ect current market conditions; 2) will not generate the promised rev-

enues; and 3) threaten thousands of good-paying Pennsylvania jobs and our region’s manufacturing potential. We know that the math simply doesn’t add up – that’s a fact. And having government meddling in free and open markets to artifi cially set the taxable value of energy – regardless of real-time market dynamics – creates an enormous amount of uncertainty (opposed to providing “some certainty,” as higher tax advocates claim).

Here’s what they’re saying about these job-crushing higher energy tax plans.

tax plan would hurt most while prices are low,” Associated Press, 3/17/15)

• Wolf’s proposal “totally ignores what’s going on in the marketplace in Pennsylvania,” said David Spigelmyer, pres-ident of the Marcellus Shale Coalition, an industry trade group. “You’re talking excessive tax rates that are well above any other shale producing region in the U.S.” Gene Barr, president and CEO of the Pennsylvania Chamber of Business and Industry, likened it to an income tax that as-sumes every worker earns $100,000 per year. “It makes no sense whatsoever,” he said. (AP, 3/17/15)

Gas&Oil16


Philadelphia Inquirer:Gov. Wolf’s proposed severance tax…sets a minimum

value of natural gas at $2.97 per thousand cubic feet (Mcf) for all gas produced in state, regardless of its actual sale price. Natural gas is currently selling at fi ve Pennsylvania trading hubs at prices ranging from $1.23 per Mcf to $2.52 a unit. “They’re basing it on an arbitrary price, whether the market bears that or not,” said State Rep. Jim Christiana (R., Beaver), who called the tax plan “irrational.” “This is akin to someone that makes $40,000 having to pay taxes on $80,000 or $100,000 in income,” said Kevin Sunday, a spokesman for the Pennsylvania Chamber of Business and Industry. (“Wolf’s severance tax would set a minimum value on gas produced,” Philadelphia Inquirer, 3/16/15)

• No other severance tax in the country sets a minimum price for producers, said Matthew Knittel, director of the state’s Independent Fiscal Offi ce, a nonpartisan agency. … According to an SNL Energy analysis, the Marcellus Region volume-weighted average price for the last 12 months was $2.62 a unit. At that price, the effective tax rate would be 7.3 percent. … The Marcellus Shale Coali-tion, the industry trade group that is opposed to any sev-erance tax, denounced the Wolf plan. “If Pennsylvania is serious about capitalizing on these abundant resources that could rejuvenate our manufacturing base, this pro-posed legislation should be rejected out of hand, and the policy focus should shift toward developing markets for its effi cient use,” coalition president David Spigelmyer said. (Philadelphia Inquirer, 3/16/15)

SNL Financial: Hiding in plain sight in Pennsylvania Gov. Tom Wolf’s pro-

posed severance tax on natural gas production is a bigger land mine than the rate or the volumetric fee: a $2.97/Mcf fl at minimum value for all gas produced in state, regardless of its actual sale price. Under Wolf’s proposed legislation, for example, day-ahead gas selling at the Leidy hub’s March 13 midday price of $1.435/Mcf would be taxed as if its value was $2.97/Mcf. “Under no circumstance shall the gross pro-ceeds be less than $20 per barrel or $2.97 per unit,” the bill Democrat Wolf is sending to the state’s General Assembly reads. … Cash prices over the previous 12 months at major trading hubs such as Leidy, Dominion South and Dominion North have averaged as high as $2.743/Mcf for Dominion South, to $2.310/Mcf at the Leidy hub; well below the $2.97 fl oor price. According to an SNL Energy analysis, the Mar-cellus Region volume-weighted average price for the last twelve months was $2.62/Mcf. … Observers on both sides of the issue in Harrisburg suspect Wolf’s staff arrived at a fl oor price by working backward from the $1 billion in new revenue Wolf needs to fi nance his plan to increase funding for education. (“Pa. severance tax proposal values natural gas at $2.97/Mcf fl oor,” SNL Financial, 3/13/15)

• The head of the Marcellus Shale Coalition, an industry trade group, was quick to blast the decision as ignorant of market realities. “It establishes a government-mandated fl oor for the price of natural gas, ignoring free market re-alities,” MSC President Dave Spigelmyer said. “Gover-nor Wolf’s proposed higher energy tax clearly jeopardizes Pennsylvania’s economic future as it relates to continued job growth and clean energy development,” Spigelmyer said. “If Pennsylvania is serious about capitalizing on these abundant resources that could rejuvenate our manufactur-ing base, this proposed legislation should be rejected out of hand, and the policy focus should shift toward developing markets for its effi cient use.” … At a $2.97/Mcf price, the proposed severance tax would represent an effective 8.5% tax on gas sold at Leidy hub’s trailing twelve month average of $2.31/Mcf. (SNL Financial, 3/13/15)

Policymakers in Harrisburg should focus on growing jobs and fi nding more ways to harness our abundant natural gas resources, especially through boosting manufacturing – not even higher energy taxes which will make the Common-wealth even less competitive.

Be sure to follow the Marcellus Shale Coalition on Twitter @MarcellusGas

Gas&Oil17

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Henry C. Jackson - Associated Press

WASHINGTON (AP) — In a far corner of North Dakota, just a few hundred miles from the proposed path of the Keystone XL

pipeline, 84,000 barrels of crude oil per day recently be-gan flowing through a new line that connects the state's sprawling oilfields to an oil hub in Wyoming.

In West Texas, engineers activated a new pipeline that cuts diagonally across the state to deliver crude from the oil-rich Permian Basin to refineries near Houston. And in a string of towns in Kansas, Iowa and South Dakota, local government officials are scrutinizing the path of pipeline extensions that would pass nearby.

While the Keystone project awaits a final decision, scenes like these are unfolding almost every week in lesser-known developments that have quietly added more than 11,600 miles of pipeline to the nation's do-mestic oil network.

Overall, the network has increased by almost a quarter in the last decade. And the work dwarfs Keystone. About

3.3 million barrels per day of capacity have been added since 2012 alone — five times more oil than the Canada-to-Texas Keystone line could carry if it's ever built.

The pipeline build-out provides a little noticed coun-terpoint to the fierce political battle being waged over the 1,179-mile TransCanada project, which is still in lim-bo seven years after it was proposed. During the long wait for Keystone, the petroleum industry has pushed relentlessly everywhere else to get oil to market more efficiently, and its adversaries have been unable to stop other major pipelines.

“There's been a lot of growth — we're really positive on it in general,” said Rob DeSai, an equity analyst with Edward Jones who focuses on the energy industry. “The oil that's being produced in the U.S., in many cases, it's basically in the middle of nowhere. You need new infra-structure to get that oil to market.”

Environmental groups have fought Keystone by citing the risk of leaks and the climate-change consequences

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Gas&Oil18


of fossil fuels. They hope to make cleaner energy options more appealing. Their success has inspired local protest groups to challenge more projects.

But those efforts, while slowing a few pipelines, have not stopped any because the regulatory path is smoother when a pipeline does not cross an international border, as Key-stone would.

In Minnesota, local opponents succeeded last year in get-ting state regulators to consider rerouting a 616-mile pipe-line proposed by Toronto-based Enbridge around pristine lakes and forests, delaying it for at least a year.

More typical, though, was an Enbridge project to double the capacity of a 285-mile stretch of pipeline in Michigan. Groups like the Michigan Coalition Against Tar Sands fought the proposal, citing a spill in 2010 that caused seri-ous environmental damage. But the Michigan Public Ser-vice Commission ruled the project acceptable, and the ex-pansion went ahead.

In Texas, Magellan's BridgeTex Pipeline, designed to take up to 300,000 barrels of crude per day from Colorado City to refineries in Houston, was recently completed over landowners' protests about its path. Local officials cleared the way for the company to use the state's eminent-domain law to condemn land for the pipeline. It came online last year.

Some environmentalists acknowledge that changing a pipeline's route often may be the best they can hope for.

“I'm telling people I don't think it's going to stop,” said Paul Stolen, a retired state biologist who has been working with groups opposing the Enbridge project in Minnesota. “I think it's going to escalate and get bigger.”

In most states, opponents have to prove a project does not serve the public interest or poses a clear environmen-tal threat.

In states that depend on energy jobs, regulators tend to be receptive to the industry. Supporters also argue that transporting oil by pipeline is safer than by train, noting recent accidents and spills.

Since 2012, more than 50 pipeline projects have been ap-proved, completed or are under development, including the just finished 600-mile Enbridge Flanagan South line, which runs through four states.

The recent surge in oil production, from roughly 5 mil-lion barrels a day in 2008 to 8.9 million barrels in 2014, has pushed new webs of pipe across regions that until recently had few. Dozens of new lines ranging up to 700 miles con-nect drill sites in the Upper Midwest to refineries in the region or to hubs in Oklahoma and along the Gulf Coast.

Even TransCanada has been busy. The company un-veiled a 200-mile, $600 million proposal late last month that would carry oil from North Dakota's Bakken field north to Canada and connect to other lines that can take it to the East Coast.

“When Keystone was first announced, I think that was something like a third of (TransCanada's) expected bud-get,” said DeSai, the Edward Jones analyst. “TransCanada now has had so many projects that now Keystone's a much smaller percentage.”

President Barack Obama has said his decision on Key-stone, which would take Canadian tar sands oil to Gulf Coast refineries, would depend in part on its possible con-tribution to global warming. He is awaiting a State Depart-ment report on its environmental impact.

But the State Department does not review pipelines that are entirely inside the United States, which is the vast ma-jority of them.

Pipeline companies also soften resistance by paying landowners for access and by assuming all liability for leaks. But some opponents say they believe that the new resistance inspired by Keystone will eventually raise more public concern about oil shipments.

In Iowa, a former state lawmaker, Ed Fallon, is walking the 400-mile route of a proposed pipeline and blogging about his trip to build support for environmentalists' pro-tests.

“They want people to just roll over and take what's com-ing,” he said of oil companies. “We know that's wrong. We know this pipeline can be stopped” because of the Key-stone stalemate.

Gas&Oil19

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the most out of your machine.

SERVICEWe take pride in our clean, well run

Service Department. Our Service Technicians are factory trained, able to

solve the toughest repairs.

Most importantly, you will find employees in every department who truly love the industry and are happy to serve you!

April 2015 Gas & Oil Magazine-Pennsylvania edition

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Transcript of April 2015 Gas & Oil Magazine-Pennsylvania edition