American Oil and Gas Reporter - June 2015 - 113

ConventionSection: Kentucky Oil & Gas Association

Kentucky Braces For Federal Changes

FRANKFORT, KY.-Kentucky's oil
and gas producers have had an uncertain
relationship with the coal industry over
the decades, but Andrew McNeill, executive director of the Kentucky Oil &
Gas Association, says there has been at
least one lasting benefit to the industry.
"Oil and gas has tended to stay under
the radar," McNeill observes.
Discussing the challenges facing oil
and natural gas producers as the association prepares for its 79th annual convention, scheduled for July 14-16 at the
Lexington, Ky., Convention Center and
Hyatt Regency, he says that dynamic
mostly is a function of the size and the
challenges the coal industry faces in
dealing with national legislators.
"When you have a large industry such
as coal, it certainly gets a preponderance
of attention from elected officials. But,
the oil and gas industry has great relationships with its federal delegation, and
we consult with those legislators on a
regular basis," he applauds.
KOGA President Rudy Vogt points
to the Environmental Protection Agency's
push to redefine waters of the United
States (WOTUS) and proposed changes
in federal emissions standards as just
two examples of governmental threats.
Vogt, member manager of Cumberland
Valley Resources in Frankfort, says
Washington's initial attempt to revise
its definition of WOTUS is poorly written.
Changes to regulations governing waters of the United States are likely to
have a significant impact in Kentucky,
Vogt predicts. He says operators now
don't need federal permits for most well
locations or road projects, but the definition proposed by EPA would require
such permits for almost everything. Vogt
adds that many of the state's smaller operators will have to hire consultants to
handle the extra federal paperwork.
Kentucky's mining industry has long
dealt with the issue of federal regulatory
authority over intermittent and ephemeral
streams in the Appalachian Mountains,
McNeill says. As the EPA seeks to stretch
its jurisdiction by expanding the definition
of WOTUS, he points out agency oversight
is extending to oil and gas activities.
"If the EPA broadly interprets its jurisdictional authority under the Clean
Water Act, that would have a significant

impact on the oil and gas industry," he
says. "KOGA participated with the Independent Petroleum Association of
America, and also has submitted its own
comments on the clean water rule, and
continues to monitor what is going on in
Washington."
McNeill says the association has been
working with Kentucky's air quality
agencies concerning the EPA's 2013
new source performance standards. He
says state regulators are interested in developing programs that meet federal mandates while avoiding imposing burdensome requirements on oil and gas operators.

Tax Changes
Proposed changes to the federal tax
code also represent a threat to the industry,
Vogt says. One of the major hits would
occur if Congress eliminated the intangible
drilling cost tax provision, he warns.
"It will really hurt smaller operators
if we lose IDCs," he holds. "We need
the tax deduction in the year we spend
the money. Smaller companies don't
have the luxury to write it off over multiple years. Because they are so shallow,
most Kentucky wells are very heavy
IDCs."
During the most recent drilling program his company undertook, he estimates
no more than 25 or 30 percent of the
cost of the well was tangible. He adds,
"The industry has had IDCs forever.
They were in the original tax code, so
why would you want to change that
now?"
KOGA is working with several experts

to help educate association members,
Vogt says. "They seem to appreciate the
effort," he adds. "I don't think they
realize how much work we put into this.
When you start talking to a member
about all the things hanging over our
heads right now, I think it is an eyeopener to most of them."
KOGA also is keeping watch over
the U.S. Fish & Wildlife Service's actions
regarding the Endangered Species Act,
McNeill says. The northern long-eared
bat was listed as threatened because of
population declines caused by whitenose syndrome, with a May 4 effective
listing date. He says the bat's habitat
covers many eastern and Mid-Continent
states, including Kentucky.
The northern long-eared bat is not
the only species likely to impact Kentucky
producers. McNeill points to the Big
Sandy crayfish as another candidate for
ESA listing, which would impact some
eastern Kentucky operations.
McNeill says KOGA and its members
work closely with Kentucky's federal
legislators, including Senate Majority
Leader Mitch McConnell, as well as
Representative Hal Rogers, a Republican
from eastern Kentucky. He adds the association also works closely with federal
legislators representing the northern producing counties in the state's Illinois
Basin.
"It continues to be a challenge to engage on these federal issues, and KOGA
continues to be the voice for the industry,"
McNeil says. "It is a role the association
embraces, and a role that delivers value
to its members."
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Seneca Resources Well Produces 22.7 MMcf/d
WILLIAMSVILLE, N.Y.-Seneca Resources Corp., the wholly owned exploration
and production subsidiary of National Fuel
Gas Co., says its exploration well in Tioga
County, Pa., targeting the Utica Shale, had
a 24-hour peak production rate of 22.7
million cubic feet of natural gas.
The well, drilled from a pad in the
company's DCNR 007 tract, was drilled
to a true vertical depth of 12,200 feet
with a treatable lateral length of 4,640
feet completed over 30 stages, Seneca
Resources says.
"This well, along with wells drilled
by other operators in the area, have de-

risked the Utica potential of our 10,000
acres on DCNR Tract 007," says Ronald
J. Tanski, president and chief executive
officer of National Fuel Gas. "We estimate
resource potential on this tract alone of 1
trillion cubic feet. With these strong
results in hand, our team is evaluating
options to develop this acreage in the
next few years, depending on local gas
prices and pipeline take-away capacity."
Tanski adds the company has additional
Utica potential, not only in Tioga County,
but across Pennsylvania, and plans to
drill its next Utica exploration well for
fiscal year 2016.
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JUNE 2015 113

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