Is natural gas real estate?

A bill introduced in the Pennsylvania House of Representatives seeks to address the long-time frustration of local governments powerless to tax or reap the benefits of gas and oil drilling in their communities.

House Bill 1373, introduced by Rep. William DeWeese (D- Greene County) would permit the taxing of oil, gas, and other valuable minerals, as real estate. The bill would amend assessment law and effectively overturn a controversial decision by the state Supreme Court in 2002 that ended the long-standing practice of taxing minerals as real estate.

Although real estate agents and an attorneys recognize gas, oil, and minerals as part of real estate, assessors in Pennsylvania are not allowed to consider those as part of real estate, the court said.

Prior to that ruling, ten southwestern Pennsylvania counties had taxed oil, gas and minerals. They include Armstrong, Centre, Clinton, Elk, Fayette, Forest, Greene, McKean, Warren and Westmoreland. In the 2001-2002 fiscal year, school districts in those counties collected $2.6 million in so called OGM taxes, “oil-gas-mineral.” That accounted for about half a percent of the total school taxes in those areas, but in some areas, such as Forest County, OMG taxes were 8.1 percent of their budgets.

House Bill 1373 doesn't seem to have much steam. Co-sponsors appear limited to representatives from those counties. The bill is one-page – hardly enough to address the constitutional, taxation, and equal treatment issues the court sought to correct in voiding the tax.

Other states have different ways for communities that bear the burden of drilling and mining to benefit from the the wealth. An upcoming Scranton Times-Tribune report will take a look at how gas wells are, and are not, taxed in Pennsylvania. ]

For the text of House Bill 1373, click here.

--- David Falchek

Gas drilling info spreads across state lines

When looking for informational meetings on the Marcellus Shale, think outside state lines. Knowing that the Marcellus Shale isn't contained in the Keystone State, groups looking to inform the public about natural gas drilling are publicizing or holding meetings in adjoining states. Damacus Citizens for Sustainability, which is based in Wayne County, has held at least two meetings in Callicoon, N.Y. The May 31st meeting at the Delaware Youth Center featured a slide show narrated via phone by Theo Colburn, Ph.D., the co-author of “Our Stolen Future.”

Friday, the Catskill Mountainkeeper and Sullivan County Planning Department are co-sponsoring an education forum on natural gas drilling in Liberty, N.Y. Click on the link below for details.

http://www.catskillmountainkeeper.org/node/516

OGAP Report on the Marcellus Shale

The Oil and Gas Accountability Project, a Colorado-based environmental organization dedicated to reducing the impacts of oil and gas development, has released a new report on Marcellus shale drilling.

The report provides helpful information on the size, depth, location and geology of the shale, as well as basics on horizontal and vertical drilling and the cost to develop different types of wells. But the report is most provocative-- and takes its most direct advocacy stance-- in its sections on hydraulic fracturing, naturally occurring radioactive materials (NORMs), metals, hydrogen sulfide and well spacing.

For example, the report sites Schlumberger, an oil and gas service company, and representatives from Range Resources and Cabot Oil and Gas saying that slickwater, a type of hydraulic fracturing fluid that requires "much more water than a typical sand and water frac," may be more effective at fracturing high-pressure areas of the shale than nitrogen gas or nitrogen foam.

"If this is the case," the report notes, "then landowners in the overpressured regions in the northern part of the play [which includes Northeastern Pennsylvania] can expect to see a lot more water truck activity than landowners in the southern part of the Marcellus shale."

The report devotes several sections to the amount of water that may be needed to explore the shale. It notes that "a well drilled in the Marcellus shale may have to be fracked several times over the course of its life to keep the gas flowing, and that each fracking operation may require more water than the previous one."

The report recommends that Pennsylvania study the radioactive material that may be in the waste produced from Marcellus wells (a process that has already been started, according to comments by Ronald Gilius, the head of the state Bureau of Oil and Gas Management, at an operators summit in Harrisburg earlier this month). The report points out that Pennsylvania does not have specific oil and gas regulations that pertain to NORMs, but other states, including Texas and New Mexico, do.

This may be a concern, OGAP notes, because the Marcellus shale is considered to be relatively more radioactive than other geological formations. The report cites a 1992 study of the radioactivity of the shale where it approaches the surface in Onondaga County, N.Y., which showed that the average amount of radon found in homes underlain by Marcellus shale was more than twice the U.S. Environmental Protection Agency's "action level"-- "the level when it is recommended that homeowners try to reduce the radon."

The OGAP report is based primarily on information drawn from other gas shales where more exploration has been done, like the Barnett Shale in Texas, but OGAP cautions readers "not to assume that what has occurred in any other gas shale basin will necessarily occur in the Marcellus shale." Most of the data is compiled from news reports, oil and gas trade publications, and scientific studies.

Deisel spill clean up

On June 4, diesel leaked from a tank at a Cabot Oil & Gas Corp. drilling site in Springville Township, Susquehanna County. The diesel leaked into a wetland near the Meshoppen Creek.

The diesel has since been cleaned-up from creek, but soil remains contaminated, according to state Department of Environmental Protection spokesman Mark Carmon. Now, a site characterization report that will include a description on the extent of the contamination is being developed.

Carmon said that the diesel did not reach the creek and that the amount of diesel that leaked is still being determined. Initially, contractors at the site believed that 800 gallons of diesel had leaked from the tank.

-- Josh Mrozinski

A "Major" Conservation Law Amendment

A bill recently introduced in the state House of Representatives would amend the Oil and Gas Conservation Law to clarify landowner and environmental protections during drilling in the Marcellus Shale.


Rep. Sandra Major (R-Bridgewater Township) sponsored the bill, which would change the law so it consistently applies to Marcellus Shale wells. The bill also excludes production costs from royalty payments and ensures that horizontal drilling does not take place under any properties not controlled by a natural gas lease.


Currently, the Oil and Gas Conservation Law only applies if a driller penetrates the Onondaga Horizon- a geological strata often below the Marcellus Shale- or reaches a depth of 3,800 feet, whichever is deeper.


When the Conservation Law is not in effect (as it rarely is with Marcellus wells), an operator is free to fracture the shale from a well on a leased property and pull gas from fractures that run under a neighboring, non-leased property (this is the "rule of capture"). The operator would not be compelled to pay that neighbor anything for the gas pulled from the well. When the Oil and Gas Conservation Law is in effect, though, the rule of capture no longer applies. Instead, the law regulates the spacing between wells and the size of a "pooled" area of land under which natural gas is produced, so that all affected landowners share the royalties.


The law also determines that royalty owners have a one-eighth interest (or a 12.5 percent royalty) in the gas produced at a well. Under Ms. Major's revisions, the dollar amount of that one-eighth interest has to equal "the current market value of all gas... as measured at the well head when produced," not the value of the gas minus the costs the operator incurs in pulling it from the shale (which is how some operators in the state have interpreted the statute). The revised bill is also careful to note that a landowner can negotiate a royalty that is greater than the mandated 12.5 percent.


The revised bill also requires operators to demonstrate on the permits they file with the Department of Environmental Protection that "any anticipated horizontal drilling shall not be conducted under or through any lands where an oil and gas lease does not exist between a landowner and an operator."


The full text of the bill is here.

Natural gas workshop June 23

Penn State Cooperative Extension and state Rep. Karen Boback are hosting a workshop on June 23 about natural gas leasing.
The workshop is titled, "Understanding and Negotiating Natural Gas Leases."
It begins 7 p.m. at the Lake-Lehman High School Auditorium.

The workshop has a $15 fee.
To register, contact the Luzerne County Extension Office at 570-825-1701 or call 1-888-825-1701 toll-free.


For more details or directions, contact one of Boback's offices:
- the Mountain Top office is located at 7844 Blue Ridge Trail, 570-868-7780
- the Sweet Valley office at 5315 Main Road, 570-477-3752
- the Tunkhannock office at 6 Cross Country Complex, 570-836-4777

-- Josh Mrozinski

Protecting Your Drinking Water

The Penn State Cooperative Extension hosted two forums last week on testing a private drinking water supply.
During the June 9 forum in Wayne County, 230 people attended, and 98 returned water samples for testing the next day, said Dave Messersmith, extension education of the Penn State Cooperative Extension of Wayne County. Thirty attendees of the Montrose program June 10 returned samples, he said.
Bryan Swistock, water resources extension associate with Penn State University, recommends regular water testing for all homeowners. To obtain a water test kit from the Penn State’s Agricultural Analytical Services Laboratory, visit http://www.aasl.psu.edu/.
The United States Department of Agriculture, National Agricultural Library, has as on-line Water Quality Information Center. Visit http://www.nal.usda.gov/wqic/water_quality.shtml.

Road bonding

Recently, Herrick Township secretary Diana Dorman encouraged members of the Wyoming County Council of Governments to adopt bonding for their dirt and gravel roads. She told supervisors that bonding is needed to protect roads from heavy trucks that would be used to haul equipment to natural gas drilling sites. She said that $600,000 in damage was caused to her road -- Cold Creek Road -- by heavy trucks hauling equipment to a nearby drilling site.

Dorman also recommended that municipalities follow these procedures:
- Establish the weight restrictions
- Pass an ordinance
- Notify the user and enforcement agency
- Post the limits
- Establish bonds
- Excess maintenance agreement
- Issue permit
- Monitor the damage



-- Josh Mrozinski

Penn State's Wiki page

Penn State Cooperative Extensions have started their own Wikipedia page to educate landowners about natural gas drilling. The page features links to an "E-Classroom" and even a royalty calculator. Here's the link: http://naturalgaslease.pbwiki.com/

Where the gas is greener: property owners' groups

Several property owners contacted me for information about the deal struck by the so-called Greenfield Gas Group. The group of property owners leased gas rights for 25,000 acres to an exploration company at rates and terms pretty favorable for property owners considering leases penned in the Marcellus Region at that time. They got $2,100 per acre and 18 percent royalty on gas removed.

Some observers out there think that must mean $2,100 and 18 percent are the going rates, but not necessarily.
Getting a deal like the one Trevor Walczak and his several hundred closest friends scored isn't as easy for the average property owner as calling an exploration company and saying “I'll have what they're having.”

Mr. Walczak will be the first to tell you that they were able to get that deal because they banded together and hired professionals. They also had a core group who did their own research and kept everyone informed and educated. They were able to collaborate on the lease addenda they really needed without overloading on them.
They were able to give the natural gas companies something of value, too. The company got 25,000 acres of largely contiguous land governed by a single lease and a major foothold in the Marcellus region. The deal saved the company untold hours and expense negotiating with hundred of individual property owners to get a similar amount of leased land.

There are some intangible benefits for the companies, as well: a clean lease and relatively sophisticated property owners who know what they are getting into.

The typical owner of 20 acres just doesn't have that sort of leverage to prompt a company to pay anything beyond the prevailing rate, whatever it is today.

For Mr. Walczak, the solution for individual property owners considering dealing with large, distant companies is clear: they should start talking to their neighbors and patch together as large a tract as possible to make a lease more worthwhile for companies.

-- David Falchek

Welcome to the Times-Tribune's Natural Gas Blog

Welcome to the Times-Tribune's natural gas blog, Deep Pockets. We'll be posting upcoming meetings, article links and other information related to natural gas drilling in Northeastern Pennsylvania. We're inviting readers to share their own useful info and tips, and to give us feedback.


Want to learn how to track natural gas drilling activity in your area? It's all on the state Department of Environmental Protection's Web site. Follow the instructions below, and you can monitor drilling activity in each county.

- Log on to www.depweb.state.pa.us
- Click on "Land Topics"
- Select "Oil and Gas Wells"
- Click on "Reports"
- Click on "eFACTS"
- Read and accept the eFacts acknowledgement statement
- Click on "Site Search"
- Select "Oil and Gas" from "Program" and chose a county if you wish.
- Hit "Search"


- Megan Reiter

Marcellus Shale Summit

A few new statistics about natural gas drilling in the state were revealed at the Marcellus Shale Summit hosted by the Pennsylvania Department of Environmental Protection in Harrisburg today.

Deputy Secretary J. Scott Roberts said that:

• 2,510 oil and gas drilling permits have been issued so far this year.
• Between January and April, DEP conducted 3,300 drilling site inspections, found 537 violations, and investigated 230 complaints.
• Most of the violations were for improper or incomplete erosion and sedimentation control plans. There were also about 70 violations for unauthorized discharges of wastewater, about 50 violations for improper signage, and about 40 drill pit violations.

Mr. Roberts also said that of the four new field inspectors being hired by the department this year, three will be located in the northeastern part of the state, particularly between Lycoming and Wayne counties.