American Oil and Gas Reporter - September 2015 - 34

Pennsylvania Mired In Budget Impasse
WEXFORD, PA.-At a time when
Pennsylvania's General Assembly normally would be returning to work on its
fall legislative agenda, lawmakers instead
remain embroiled in a dispute that left
the state without a budget for two months
and counting.
Democratic Governor Tom Wolf, who
made a natural gas severance tax a cornerstone of his budget proposal, vetoed a
spending plan crafted by the legislature's
Republican majority that omitted the severance tax along with any other tax increases. Since the governor's veto in late
June, the legislature's leaders have been
consumed by budget negotiations with
the administration and have put other activity on hold, the Pennsylvania Independent Oil & Gas Association reports.
"For us, the budget stalemate has been
more good news than bad," relates Louis
D'Amico, PIOGA president and executive
director. "We are extremely gratified that
the leadership and many of the rank and
file in the legislature understand that a new
tax on our industry not only would be devastating to our industry, but also would
deal a major blow to the state's economy."
D'Amico credits a coalition led by
the Pennsylvania Chamber of Business
and Industry for helping deliver the message about the importance of the natural
gas industry to the commonwealth's economy. "This isn't just an oil and gas issue,"
he says. "It affects so many businesses
and industries here. No one wants his
taxes increased, as the governor's budget
would do in spades, and no one wants to
lose economic opportunities."
Wolf proposed a severance tax of 5.0
percent of the value of the gas plus 4.7
cents an Mcf. The 4.7-cent portion includes
a floor price of $2.97, regardless of how
low the market goes, D'Amico points out.
During post-veto negotiations, the governor
offered to remove the $2.97 floor price,
but PIOGA reports GOP leaders continued
to spurn the tax in its entirety.

Other Legislation
The legislative slowdown caused by
the budget impasse means several bills
on PIOGA's radar have not come up for
consideration, D'Amico goes on. Among
legislation he says the association anticipates could see action this fall are reform
of the Pennsylvania One Call System
and pipeline safety, a proposal encouraging
use of acid mine water for hydraulic fracturing, a bill providing guidance on blanket
recording and indexing of oil and gas
leases by county recorders of deeds, and

34 THE AMERICAN OIL & GAS REPORTER

royalty-owner rights measures.
An issue of some contention last year
was legislation transferring authority for
the one call program from the Department
of Labor and Industry to the Pennsylvania
Public Utility Commission. D'Amico explains that oil and gas gathering lines
have been exempt from mandatory participation in the call-before-you-dig program, and PIOGA was able to secure a
compromise that retained the exclusion
for gathering lines serving conventional
wells while mandating participation for
the higher-pressure lines tied to unconventional wells. This year's HB 445 incorporates that compromise position, but
D'Amico says there have been indications
the PUC will fight to have all gathering
lines included as the bill moves.
In a related matter, he says PIOGA
expects legislation giving the PUC safety
jurisdiction over unconventional gathering
lines located in what are known as Class
1 rural areas. Such pipelines are not regulated currently by either the PUC or the
federal Pipeline and Hazardous Materials
Safety Administration. Last session, that
issue was rolled into the legislation addressing PA One Call.
One piece of PIOGA-supported legislation that D'Amico notes has seen
considerable action this year is SB 875,
which encourages the industry to use
acid mine water-a legacy of Pennsylvania's coal-mining history-by limiting potential liabilities for producers who use
mine water for drilling and completion.
After winning Senate approval in June,
the bill made its way through the House
and was amended slightly in a floor vote
before being sent back to the Appropriations Committee. D'Amico says he believes the win-win proposal eventually
will reach the governor's desk.
Another bill that already has earned
one chamber's approval and could see
action this fall is HB 621, which sets
standards for how county recorders of
deeds handle blanket assignments of oil
and gas leases. D'Amico says the bill
gives recorders the discretion to refuse
documents that assign 50 or more leases,
requires the lessor's name be indexed so
property owners can more easily track
who holds their mineral rights, and allows
some counties to charge a fee for each
lease that must be indexed. He says PIOGA is neutral on the legislation.
Royalty Owner Bills
D'Amico says PIOGA does not favor
a pair of Senate-passed measures purported

to protect the rights of property owners.
Sponsored by Senator Gene Yaw, R-Lycoming County, SB 147 allows royalty
owners the opportunity to inspect a producer's records to verify proper payment.
D'Amico says information provided by
the gas company would be considered
confidential. In addition, the bill requires
that royalty payments must be made
within 60 days of production.
He adds that SB 148, meanwhile, prohibits a producer from retaliating against
a royalty owner by terminating the lease
agreement or ceasing development because
a landowner questions the accuracy of
the royalty payments.
"PIOGA's Legislative Committee believes these two bills interfere with the
relationship between the lessor and lessee,
and are not needed," D'Amico says,
adding that the 60-day deadline in SB
147 may not be practicable for some
companies.
PIOGA also contends that HB 1391
is a case of the state improperly inserting
itself into the contractual relationship.
That measure would make it illegal for
producers to lower royalty payments
below the 12.5 percent level mandated
by the Guaranteed Minimum Royalty
Act of 1979 by deducting post-production
costs, D'Amico explains. The bill allows
courts to award triple damages in cases
where it is determined the producer acted
willfully in failing to pay the 12.5 percent
minimum. D'Amico notes there had been
no indications by late August that the
bill would move soon.
A major focus for PIOGA has been
expanding markets for Pennsylvania-produced natural gas, and D'Amico says
newly introduced SB 886 meshes well
with this goal. The bill would enable
creating "affordable energy development
zones" in the state that would provide
tax benefits to certain businesses that located in areas with unconventional gas
wells.
"This particular bill pushes all the right
buttons for us, and we hope it gets the
airing it deserves," D'Amico enthuses. ❒

Coming In October

The first new natural gas liquefaction export facility built in the United
States in nearly 50 years is scheduled
to begin operations by year's end.
Special reports examine the implications of U.S. LNG exports for domestic producers.

American Oil and Gas Reporter - September 2015

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