American Oil and Gas Reporter - March 2018 - 85

ConventionSection: Pennsylvania Independent Oil & Gas Association

Pennsylvania Sends Confused Signals
WEXFORD, PA.-The petrochemical
industry is eyeing Pennsylvania's worldclass natural gas resources, best illustrated
by Shell Chemical Appalachia LLC's
plans to have an ethylene cracker in production by 2022. The gas potential also
is being scrutinized by state legislators
interested in a growing revenue stream,
and regulators apparently unwilling to
work with operators.
Dan Weaver, president of the Pennsylvania Independent Oil & Gas Association,
uses Amazon's search for a second headquarters as an example of the mixed signals
the state sends to businesses. "Pennsylvania
is saying welcome to Amazon's new facility
near Pittsburgh at the same time legislators
are debating a warehouse tax," Weaver
says. "What does that say to Amazon? It
says legislators are confused, and it says
the state is closed for business."
In addition to the legislative uncertainties, the state regulatory climate
demonstrates too much overreach, Weaver
maintains, pointing to permit processing
time as only one example of how the
state limits natural gas production.
"Certain state permits, by statute, are
supposed to be processed in 45 days, but
they are taking more than a year," he
says. "The Pennsylvania Department of
Environmental Protection has caught up
on its backlog, so I have to give that
agency credit."
The Shell cracker and other proposed
petrochemical facilities will need a staggering amount of natural gas liquids, and
Pennsylvania's producers must push hard
to meet that demand, Weaver notes, but
some statehouse bills under consideration
are making that effort a challenge.
"That cracker and the other sites can
pull gas from Ohio or West Virginia, which
is good for the facilities but bad for Pennsylvania. This is what legislators have to
keep in mind: Pennsylvania is not the only
ballgame in town. Many of those petrochemical plants are being built so close to
the state border that they can pull gas from
wherever they need it," he asserts.
Permit Fees
Pennsylvania Governor Thomas Wolf
is proposing to double permit fees for unconventional natural gas wells, which PIOGA Chairman Gary Slagel describes as
a way of getting DEP's Oil and Gas Bureau's budget back in the black, so it can

hire more staff. Slagel says there are reports
the governor wants to hire 35 people.
"I don't know if that is the problem. If
you talk to operators in the field, they say
there is no shortage of DEP personnel, particularly if you look at how many inspectors
are on site on a daily and weekly basis,"
Slagel asks. "Are there department employees
that could be redirected to take care of
some of the administrative shortcomings?"
According to Weaver, DEP built up
its inspector staff to support industry conditions a few years ago, when Pennsylvania
operators were drilling 2,000 wells a
year. Now, producers have slashed that
by a third, but DEP never reduced the
number of inspectors. "Those inspectors
have to justify their jobs, so they have to
inspect. Instead of seeing an inspector
on a well site once every two weeks, you
might see one every other day," he says.
Weaver adds that PIOGA opposes any
permit fee increases, even if the stated
goal is to cut processing times for permits.
He points out the proposal seeks to increase
permits from $5,000 to $12,500, saying a
PIOGA analysis concludes a fee increase
of $1,000 will be more than enough to
hire those additional state workers.
River Commissions
The oil and gas industry's relationship
with the Delaware River Basin Commission
remains troublesome, Weaver assesses,
contrasting it to the positive results achieved
with the Susquehanna River Basin Commission. On Nov. 30, the DRBC released

its proposed rules banning hydraulic fracturing in all shale formations in the basin.
"Geologically speaking, there actually
is more industry activity in the Susquehanna
River region than there ever will be over
by the Delaware River," he says. "I think
the Delaware River commissioners fear
that operators would contaminate water
sources, although there also are concerns
industry use will drain the water sources.
But if you look at the amount of water operators recycle, the industry is using as
much water in one day as New York City
was putting down its drains in two hours."
Weaver predicts the Delaware River
fracturing moratorium will remain in place
for the foreseeable future, but because of
the area's geology its impacts on the state's
gas production should be limited. "Until
the industry really starts running out of
areas to drill, there is not a lot of need to
start operating in that area," he assesses.
The main concern about the moratorium is that other government entities
could use it as an excuse to impose their
own ban, he warns.
"PIOGA will battle that," he says. "The
difference between the Delaware and
Susquehanna commissions is that there
are continuing conversations with Susquehanna. PIOGA has a track record with the
Susquehanna River Basin Commission.
The Delaware River region is closer to
New York City, and that makes it another
ballgame. The Susquehanna River region
is more rural, so it is just a different style
and different conversation."
r

Jericho Oil Corp. Plans To Drill Five STACK Wells
TULSA-Jericho Oil Corp. has entered
into a farm-in agreement through its Oklahoma STACK joint venture to participate
in drilling as many as five horizontal
wells in Major County, Ok., near the
company's core STACK operating area.
According to Jericho, at the STACK
JV's option and after drilling and completing two standard lateral (4,500 feet)
horizontal wells targeting the Osage formation, the STACK JV will earn a 50
percent interest in drilling 6,000 net leasehold acres. The company adds that additional well commitments by the JV will
yield an increased drilling term on the
leasehold acreage.
The STACK JV has elected to participate in the drilling of the first scheduled

Osage well under the farm-in agreement,
and pay its proportionate working interest
share of costs related to drilling and completion (47.5 percent working interest/37.8
percent net revenue interest to the JV).
Jericho says this well is being drilled,
and that drilling a second scheduled Osage
well is expected in the first half of 2018.
In an earlier announcement, Jericho
said it had fully exercised its option to
increase its ownership in the STACK JV
to 31 percent for $6 million. Jericho and
its private joint venture partner closed
the acquisition of 9,400 net surface acres
in the oil window of the STACK play in
September. At the time, the company
says its exercised $3 million of its option
for an initial 11 percent ownership. r
MARCH 2018 85

American Oil and Gas Reporter - March 2018

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