March 25, 2009

On Tuesday Representative Dave Reed (R-Indiana) and Rep. Tina Pickett (R-Bradford) were joined by members of the House Republican Energy Task Force to announce the  “Energize PA” initiative. The legislation to implement their initiative, HB 1050, would expand the state lands available for leasing to drill for natural gas and additionally lead to royalties that would provide an estimate $260 million a year for the Commonwealth’s budget.

Republican Leader Representative Sam Smith (R-Jefferson) opened the press conference by noting the need for Energize PA. Representative Smith noted that the House Republican Caucus has been researching alternatives to the Governor Rendell’s proposed severance tax on natural gas drilling. Rep. Smith called the Governor’s proposed tax a “stop sign” to the development of the industry as well as job and wealth creation.

Rep. Pickett passed on messages from her constituents that some small businesses are surviving almost exclusively from the natural gas drilling activity in the area. Representative Pickett compared the Governor’s proposal to instantly taxing and regulating a new plant opening in Pennsylvania, something she does not believe makes good business sense.

Instead, Representative Pickett said that the expansion of drilling “could mean a solid economic boom for 50 to 100 years here in Pennsylvania” if handled correctly.  She added that under HB 1050 revenues received in royalties from drilling companies would be divided among the general fund, local municipalities hosting the drilling as well as conservation districts.

Representative Reed said the task force first sought to recognize the economic impact the natural gas industry has and will have on the Commonwealth. He noted a projection that the Marcellus Shale Play alone could create 100,000 jobs and estimates that the severance tax could cost Pennsylvania 53,000 jobs over ten years.  Representative Reed said the Energize PA proposal would create an additional 7,000 jobs over and above the already estimated 100,000 jobs created from the Marcellus Shale Play. It would also help close the budget gap facing the state this year.

Finally, he noted that local governments and municipalities currently face the impact of drilling without the benefits and that the Energize PA proposal would greatly improve the economic conditions in these areas.

Representative Reed explained that the proposal will allow for the lease of 390,000 additional acres of state forest lands for drilling.  The drilling will take place over three years, with the state leasing 130,000 acres a year for a minimum bid for the right to drill starting at $2,000 an acre, collecting a 16% royalty on production.  He gave estimates of revenue ranging from $260 million the first year, with a high end projection of peak revenue coming in 10 to 15 years raising as much as $900 million. Representative Reed explained that revenues will be divided with the general fund receiving over $200 million the first year, $100 million more than the Governor’s projected revenue from the severance tax.  Another $32.5 million will be distributed equally among counties and boroughs with active wells.  A Marcellus Shale Well Infrastructure Fund will receive $6.5 million solely for communities involved in the Marcellus Shale drilling.  Finally, Representative Reed explained that conservation districts will receive over $13 million in the first year.

Q& A with the press:
When asked how the minimum bid of $2,000 was arrived at, Representative Reed answered that when 74,000 acres were leased last year revenues received were about $184 million, making the average bid per acre $2,600. Industry experts were consulted and he said the current price of $2,000 an acre was deemed fair by all parties.
Representative Reed was asked to explain the difference in job creation between his proposal and the Governor’s proposal.  He said there are three numbers to be aware of.  First, the Marcellus Shale play is estimated to create 100,000 jobs over ten years. The severance tax proposal is estimated to cost 53,000 jobs and the task force’s proposal would create an additional 7,000 jobs which would include jobs in the industry as well as indirect jobs such as construction material producers.

Asked to explain the difference between a severance tax and a royalty, Representative Reed responded that severance taxes are based upon production and the cost is likely to be passed along to consumers. In contrast, the task force’s proposal would result in upfront payments for the right to drill, the same as they would for a private land owner, and later revenue from royalties from extracting minerals from the wells.

Lastly, Representative Reed was asked where the additional 390,000 acres of state forest would come from and who makes the decision as to what forests would be cleared for drilling. He responded that though 390,000 acres sounds like a lot, it only amounts to 15% of state forests. Representative Smith noted that the land would be state parks or state game lands, and that the decision would be made by the Department of Conservation of Natural Resources.

Watch the news conference video

Read the press packet