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February 2015 PIPP Pipeline

Pennsylvania Independent Petroleum Producers Association, Inc.

A 501(c)(6) Non-Profit Business Association

—Celebrating 30 years—

Volume 25, No. 1 Supporting the Small Producer February 2015

—IN THIS ISSUE—

DEP and DCNR cabinet appointments . . . . . 1

The President’s Message . . . . . . . . . . . . . . . . 1

Mechanical Integrity Assessment Testing. . . . 3

Senate Oks royalty owner legislation . . . . . . . 3

NSWR percentage depletion study released. . . 4

New Oil & Gas Regulations will test Wolf . . . 5

Crude Oil & Natural Gas Pricing . . . . . . . . . . 5

No hope for $100 oil amid glut . . . . . . . . . . . . 7

President’s Budget “Worse Case Scenario” . . 7

The President’s Message

January 2015

We are now in a new year, but still working on

many of the same issues we were in 2014.

There were two bills introduced in the 2013-

2014 session that not were completed, hence were sine

die (indefinitely postponed) at the end of the session.

One was reintroduced in this new session and we will

follow its progress

The first, Senate Bill 279, was reintroduced by

Senator Scott Hutchinson in the 2015-2016 session. It

would create the Pennsylvania Grade Crude Develop-

ment Advisory Council. If passed and signed into law

by now-governor Tom Wolf, it would be the first time

that we, as an industry, would have input into the regu-

lations and policies the DEP is writing. It is something

that is long overdue.

(Continued on page 2)

Pa. Governor Tom Wolf’s

cabinet taking shape

Gov. Tom Wolf “likes to be recy-

cle and ‘upcycle’, when it comes

to picking the leaders of the state’s

environmental and conservation

departments,” according to a report

in the Pittsburgh Post-Gazette.

Mr. Wolf tabbed John Quigley to head the Department

of Environmental Protection and Cindy Dunn to be sec-

retary of the Department of Conservation and Natural

Resources.

Quoting the Post-Gazette, “Mr. Quigley, Natural Re-

sources secretary in the Democratic administration of

former Gov. Ed Rendell, will have a higher profile in his

new leadership role at Environmental Protection, which

has the primary responsibility for regulating the state’s

booming shale gas drilling industry operating in the

Marcellus and Utica formations.”

“Mr. Quigley also served as Natural Resources chief of

staff and director of Legislation and Strategic Initiatives

and director of operations and led the department’s work

on alternative energy initiatives. Prior to his work at the

agency, he was government relations manager at

statewide environmental organization Citizens for Penn-

sylvania’s Future, was the founding executive director of

a nonprofit economic development corporation in Hazle-

ton, Pa., and was mayor of that city for eight years.”

Also quoting the Post-Gazette: “Ms. Dunn is president

and chief executive officer of PennFuture. As Natural

Resources secretary she would oversee management of

the state’s parks and forests.”

“She was the agency’s deputy secretary for conservation

and technical service in the Rendell administration, lead-

ing the department’s Conservation Landscape Program,


NOTE: See article on page 7, “New Conven-tional Oil and Gas Advisory Committee creat-ed”—the announcement today (February; 17) by the DEP of a committee which appears (by this

editor) to be an attempt to preempt Sen. Hutchinson’s proposed Council.

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PIPP Pipeline

Published by

Pennsylvania Independent Petroleum Producers Association, Inc.

Mark Cline, President 1577 Prentisvale Rd., Eldred, PA 16731

Phone: 814 366-2324

Joyce Cline, Editor PO Box 103, Bradford, PA 16701-0103

Phone: 814 368-5395 * Fax: 814 368-2283

E-mail: [email protected]

Website: PIPPonline.com

For information on advertising, contact the editor or

visit the “Newsletters” page on the website.

PIPP does not provide mailing lists to any person or

company. Mailings can be submitted to the PIPP office

but costs must be paid in advance by the provider.

BOARD OF DIRECTORS

Mark Cline—Eldred, Pa.

Willard Cline—Bradford, Pa.

Alex Elder—Parker, Pa.

Len Elder—Parker, Pa.

Michael Graham—Oakdale, Pa.

William Henderson—Pleasantville, Pa.

Gary Hovis, Kennerdell, Pa.

Robert Hurrelbrink—Kossuth, Pa.

Thomas Karg—Oil City, Pa.

John Lendrum—Cranberry, Pa.

Jerry Macurak—Bruin, Pa.

Carl McCall—New Bethlehem, Pa.

Richard McComb—Stoneboro, Pa.

Thomas Miller—Olean, NY

Michael Perrett—Rouseville, Pa.

R.B. Robertson — New Bethlehem, Pa.

Brian Rottman—Petrolia, Pa.

Karl Rottman—Petrolia, Pa.

Scott Schreffler—Emlenton, Pa.

Joseph Stiglitz—Franklin, Pa.

Raymond Stiglitz—Franklin, Pa.

R.V. Straub—Boalsburg, Pa.

Joe Thompson—Pleasantville, Pa.

Burt Waite—Cochranton, Pa.

Glenn Weaver—Franklin, Pa.

Honorary Board Members

John Ifft—Oil City, Pa.

Donald Taylor—Oil City, Pa.

OFFICERS

President: Mark Cline

Vice President/Recording Secretary:

Michael Graham

Corresponding Secretary/Treasurer: Joyce Cline

Immediate Past President: Gary Hovis

Executive Director: Vince Straub

Government Consultant: John Peterson—

Pleasantville, Pa.

The council would consist of:

Secretary of Community and Economic Development or de-

signee;

Secretary of Environmental Protection or designee;

One member of the Senate appointed by the President Pro

Tempore of the Senate;

One member of the Senate appointed by the Minority Leader

of the Senate;

One member of the House of Representatives appointed by

the Speaker of the House;

One member of the House of Representatives appointed by

the Minority Leader of the House.

Additional members that would be appointed by the Governor

include:

Two representatives from PIPP

Two representatives from PGCC

Two representatives from PIOGA

Two representatives of refineries of Penn Grade Crude Oil

One representative of a nonprofit corporation which has the

purpose of promoting the history and economic benefits of

the conventional oil and gas industry

One representative of academia who is a geologist with an

expertise in petroleum geology

One representative of academia who is a hy-

drologist

I believe this council will greatly benefit

our industry. We need to work hard to get this

bill passed. Any time you are around your Representative or

Senator, remind him or her how important this bill is to your

industry.

The second issue we expect to be dealing with again in

this session is an amendment to the 1974 Underground Utility

Line Protection Law, or Pennsylvania One Call. As was out-

lined in the March 2014 issue of The PIPP Pipeline, certain

members of the House are determined to include oil and gas

gathering lines under Pennsylvania One Call Law and transfer

enforcement from the Department of Labor and Industry to the

Public Utility Commission.

We can not let that happen as small producers can not

afford to participate in One Call.

We are also working on other projects, as well as

fighting to get new Chapter 78 regulations written that we can

live with and not put us out of business.

It will be a year requiring a lot of time and hard work.

We will need your support.

Mark L. Cline, Sr., President

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Mechanical

Integrity

Assessment

Testing and reporting the “integrity” of oil and gas wells

in Pennsylvania is a reality.

The Pennsylvania Department of Environmental Re-

sources (DEP) Office of Oil & Gas Management webpage

provides this explanation:

“The Mechanical Integrity Assessment (MIA) is a regula-

tory-based process used to inspect, assess and record

quarterly well integrity data for operating oil and gas

wells. This quarterly inspection is required by regulation

under 25 Pa. Code § 78.88, Mechanical Integrity of Oper-

ating Wells. Note that this requirement does not apply to

underground gas storage wells, wells that have been

granted inactive status, and those regulated under the

EPA’s Underground Injection Control Program; monitor-

ing and assessment of those wells is addressed under oth-

er sections of Chapter 78. Annual reports for wells includ-

ed under the MIA requirement must be submitted to the

Department by no later than Feb. 15 of the year following

the inspections. MIA annual reporting forms, instructions,

a streamlined user guide and other helpful information

may be accessed by clicking on the appropriate link be-

low.”

Reporting is required starting Feb. 15. 2015. The Depart-

ment provides instructions on its website.

Access the DEP Homepage using http://

www.depweb.state.pa.us/portal/server.pt/community/

oil_and_gas/6003.

Under “ DEP’s Office of Oil and Gas includes:”,

click on “Office of Oil and Gas Management”.

Under “What’s New:”, look for “Mechanical Integri-

ty Assessment”. Instructions, Training Tutorials,

and Forms are offered there.

To complete a report, you must be registered to use the

DEP Greenport reporting website. If you are not current-

ly enrolled, that registration must be completed first as

you need a User Name and Password to access the forms.

After entering the DEP Greenport, you will find a site

menu listing “Mechanical Integrity Testing”. If you have

registered your wells with the Department, you can use

Short Form C, the “simplified” form, prepopulated with

required well API numbers. There is also a location

where you can download your own file if you have creat-

ed one on your computer.

A link to the DEP Homepage is also available on the

PIPP website: PIPPonline.com, under “Resources.”

Assistance Offered:

A member of the PIPP Board of Directors has offered assistance to members who would like help with electronic production reporting or Mechanical Integrity Assessment

reporting.

Joe Stiglitz recently had shoulder surgery and, while recovering, Joe is willing to assist you with these filings—for a small fee,

Joe can be reached by calling or texting (814) 671-1751, or by emailing:

[email protected]

Senate Oks royalty owner

legislation

The State Senate unanimously approved two pieces of

legislation last week intended to give more protection to

royalty owners. Both measures were approved by the

Senate last year but died in the House of Representatives

when the session ended. The bills include:

SB 147, amending the Oil and Gas Lease Act to al-

low royalty owners the authority to inspect produc-

tion records of natural gas companies to verify the

accuracy of royalty payments.

SB 148, which creates the Natural Gas Lease Anti-

Retaliation Act to prohibit natural gas companies

from retaliating against a royalty owner by termi-

nating a lease agreement or stopping development

because the royalty owner questions the accuracy

of royalty payments.

The bills will next be considered by the House Energy

& Natural Resources Committee.

2015 PIPP picnic

and annual meeting

July 18th

4


NSWA releases IHS percentage depletion study

IHS Report: Removal of the percentage depletion tax provision has unintended consequences for U.S. economy, small energy producers and royalty owners

01.15.15 Eliminating the percentage depletion tax provision for U.S. oil and gas producers would cut into economic growth, cost jobs and labor income, and cost the federal gov-ernment a net $2.5 billion in tax revenue by 2025, and anoth-er $1.1 billion in royalty revenue from oil and gas produced on federal land, according to an economic impact assessment released today by the National Stripper Well Association (NSWA). The assessment was produced for NSWA by IHS, a leading global source of critical information and insight.

Percentage depletion is a tax provision used by oil and natural gas producers that allows them to recoup some of the costs involved in exploring for and developing fossil fuel sources. Over the next decade (2015-2025), the economic impact of eliminating the percentage depletion deduction from the tax code would cost the United States economy $184.5 billion in gross value-added, an average of 178,000 jobs per year and $115 billion in earned labor income, the report said.

"At tax time, we could always count on getting a little bit back from percentage depletion," said National Stripper Well Asso-ciation Chairman Mike Cantrell, who is a longtime marginal well operator. "That's what we would use to drill wells and rework existing wells to increase production. Some years, it was the only investment capital we had."

Cantrell said that the more than 770,000 marginal oil and natural gas wells currently in production in the United States represent nearly 80 percent of the total wells, and are re-sponsible for “19.6 percent of the total of all oil and natural gas produced domestically.”

Although they are not the only ones who use the tax provi-sion, small independent producers who operate marginally-economic wells would be disproportionately affected by elim-ination of the percentage depletion deduction.

In addition, the report found that by the end of the fore-cast period, the number of producing wells would de-crease by 4.2 percent, and new wells drilled would de-crease by 23.5 percent. Daily oil production would de-crease by nearly four percent and daily gas production by two percent. The production cutback would result in more than 37,000 wells not drilled and 644 million barrels of oil, and 2.8 tcf of natural gas, not produced.

Cantrell said the “unintended consequences” of any change in tax policy that eliminates the percentage deple-tion allowance for oil and gas producers will be costly for the American economy. And the consequences get worse over time as investment in new wells, which would other-wise have been drilled under the current policy, are not made.

“Stripper well producers are the ‘family farmers’ of the oil and natural gas industry, and are collectively responsible for a significant part of the energy independence we see today in the U.S. Keeping the existing number of wells online doesn’t just benefit us, it benefits all Americans,” he said. Small operators are concentrated in mature, largely con-ventional, oil- and gas-producing areas and consequently, more than 75 percent of the loss of producing wells, and two-thirds of the loss of new wells can be attributed to these areas. Almost every state is affected, IHS found, whether fossil fuel production exists in the state or not, although Texas is predicted to absorb more than half the drilling losses and about 45 percent of the production loss-es.

Private royalty owners who lease mineral rights for pro-duction and who have gotten a share of the revenue from the production of the wells in return can also claim the percentage depletion deduction.

The report noted that eliminating the percentage deple-tion deduction affects royalty owners in two ways. First, because it lowers the incentive it means that leasing min-eral rights or lending investment capital for new wells seen as riskier investments will likely be forgone; and, secondly marginal wells will produce less or go offline, diminishing the amount of production revenue and lowering royalty owners’ earnings.

Overall, private royalty owners are expected to earn $34.3 million less over the decade-long forecast period.

“Eliminating the percentage depletion tax deduction low-ers the productive capacity, not only of the oil and gas in-dustry, but the entire American economy as a whole,” Cantrell said. “Our livelihood as the small business sector of the energy industry, and that of nearly 10 million royalty owners nationwide, is based upon our ability to save per-centage depletion.”

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Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2015 2.99

2014 4.71 6.00 4.90 4.66 4.58 4.59 4.05 3.91 3.92 3.78 4.12 3.48

2013 3.33 3.33 3.81 4.17 4.04 3.83 3.62 3.43 3.61 3.67 3.62 4.24

2012 2.89 2.46 2.25 1.89 1.94 2.54 2.59 2.86 2.71 3.03 3.35 3.35

2011 4.08 4.23 3.90 3.98 4.12 4.19 4.27 4.20 3.82 3.62 3.35 3.14

2010 5.14 4.89 4.36 3.92 4.04 4.25 4.36 4.22 3.76 3.69 3.34 3.96

2009 5.15 4.19 3.72 3.43 3.45 3.45 3.43 3.14 2.92 3.60 3.64 4.44

2008 6.99 7.55 8.29 8.94 9.81 10.82 10.62 8.32 7.27 6.36 5.97 5.87

2007 5.83 6.91 6.78 6.37 6.85 6.72 6.32 5.87 5.42 5.90 6.58 6.97

U.S. Natural Gas Wellhead Price (Dollars per Thousand Cubic Feet)

Year

Avg.

Year High Year Low Current 2/17/15

2015 to-date

$49.53 $40.45 $49.53

2014 88.66 102.76 49.27

2013 95.72 105.55 89.02

2012 92.07 106.82 75.49

2011 90.07 108.25 70.72

2010 73.19 85.50 61.75

2009 55.78 75.00 28.75

2008 94.11 138.50 28.25

2007 68.40 93.25 47.25

2006 63.15 73.75 52.75

2005 53.74 67.00 39.50

Source: American Refining Group, Inc.

CRUDE PRICES

CRUDE OIL PRICING GROUP 2 (OH/PA/NY)- 60.0 – 149.99 net barrels

from a single location

Natural Gas Spot Prices at the Henry’s Hub

New oil and gas regulations could be

a test for the Wolf administration

February 10, 2015 12:15 AM

By Laura Legere / Pittsburgh Post-Gazette

The next draft of a controversial package of state environmen-

tal rules for oil and gas well sites is due to be revealed near the

beginning of March, and observers will be watching to see

how Gov. Tom Wolf’s administration leaves its mark on the

standards.

The wide-ranging revisions will change how the oil and gas

industry operates above ground, and influence everything from

pits and pipelines to the protection of public resources around

drilling sites.

A draft of the final rules was expected to be discussed by an

oil and gas advisory board to the state Department of Environ-

mental Protection on Jan. 22, two days after Mr. Wolf was

inaugurated. The meeting was canceled because the draft “had

not undergone sufficient review at that point,” a DEP spokes-

woman said.

DEP now is preparing to present the revisions to the advisory

board on March 5.

The delay gives regulators more time to address an unprece-

dented volume of suggestions submitted by citizens, industry

representatives and environmental groups on how to change

the first draft offered last year.

It also gives the Wolf administration, including acting DEP

Secretary John Quigley and two members of the governor’s

executive staff who served as DEP secretaries for former Gov.

Ed Rendell, a chance to scrutinize the proposals.

DEP officials already had publicly identified scores of contest-

ed ideas in their original draft that commenters had urged them

to strengthen, weaken or drop. The new draft will reveal where

regulators came down on those debates and provide an early

indication of how the Wolf administration intends to handle

environmental oversight of the industry.

“There are some people — I’m not one of them at this point —

who think the administration is going to come in with a broom

and just sweep a lot of the proposed rules out and start all over

again,” said Gary Slagel, a government relations coordinator

with the law firm Steptoe & Johnson who serves as an industry

representative on the DEP oil and gas advisory board.

“I don’t think that is in anyone’s best interest, particularly the

administration,” Mr. Slagel said. “The sooner they get those

rules in place, the sooner they’re going to have the additional

regulation that’s called for by those rules.”

During the campaign and after his inauguration, Mr. Wolf said

he supports natural gas development with stronger regulations,

but he rarely ventured into specifics. Some of his deputies,

though, expressed clear opinions on the DEP’s proposed rules

in past positions before they joined the new administration.

Mr. Quigley kept a blog about environmental policy issues

from 2012 until last month and wrote several times about

Pennsylvania’s draft drilling rules or operational issues cov-

ered by them. He called DEP’s proposed review procedure for

minimizing impacts to public resources like parks and histori-

cal sites “very weak” and “strongly tilted in favor of develop-

ment, and against public lands protection.”

He also repeatedly called for the state to ban the use of large

open pits, called impoundments, for storing waste fluids pro-


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and before that headed the Bureau of Recreation and

Conservation as well as the Office of Communications,

Education and Partnerships.”

“Previously, she was Audubon Pennsylvania’s execu-

tive director from 1997-2003, and was the Pennsylva-

nia program director for the Alliance for the Chesa-

peake Bay for 10 years.”

(Continued from page 1)

COMMONWEALTH OF PENNSYLVANIA

Dept. of Environmental Protection

Commonwealth News Bureau

Room 308, Main Capitol Building

Harrisburg PA., 17120

FOR IMMEDIATE RELEASE 02/17/2015

CONTACT:

Susan Rickens, DEP

717-787-1323

DEP Enhances Advisory Role in Conventional Oil and Gas

Regulation Development

New Conventional Oil and Gas Advisory Committee created

HARRISBURG -- The Department of Environmental Pro-

tection (DEP) today announced a newly formed Convention-

al Oil and Gas Advisory Committee (COGAC) to increase

transparency and communication about regulating the con-

ventional oil and gas drilling industry.

“Creating this advisory committee will increase dialogue

between DEP and the regulated community as well as broad-

en the interests we hear from,” Acting DEP Secretary John

Quigley said. “Improving communication between all stake

holders and our department will foster stronger environmen-

tal safeguards in the future.”

COGAC will advise DEP on matters related to conventional

oil and gas extraction practices and regulations and will be

structured similarly to Nominations are being accepted for

COGAC. Persons interested in nominating a committee

member should send their full name, title, affiliation, ad-

dress, e-mail, and telephone number and their nominee’s

resume to Todd Wallace of the Office of Oil at Gas Manage-

ment at: Rachel Carson State Office Building, P.O. Box

2063, Harrisburg, PA 17105-2063 or [email protected].

Nominations will be accepted through March 3.

DEP’s existing Oil and Gas Technical Advisory Board.

For more information, please visit, www.dep.state.pa.us,

keyword: advisory committee.

The President’s 2016 budget proposal, which calls

for the elimination of all oil and gas industry tax pro-

visions, is no surprise, but completes the absolute

‘worst-case scenario’ when combined with the crude

oil price slump, said National Stripper Well Associa-

tion Chairman Mike Cantrell.

OKLAHOMA CITY – Just like the movie Ground-

hog Day, where actor Bill Murray is caught in a never

-ending loop of the same day, the national budget

proposal released by the White House on Groundhog

Day, February 2, 2015, again calls for the repeal of all

oil and natural gas industry tax provisions, which

came as no surprise to domestic oil and natural gas

producers.

“I have to say we expected this,” said National Strip-

per Well Association (NSWA) Chairman Mike

Cantrell. However, when combined with the crude oil

price slump, the President’s budget proposal is the

“absolute worst-case scenario” for small independent

oil and natural gas producers.

“As the small businesses of America’s oil and gas

industry, we rely on percentage depletion for capital

formation to drill new wells and rework old wells,”

Cantrell said. “Once again,

President Obama is targeting America’s independent

energy producers and workers with the equivalent of

a devastating tax increase on mostly small producers

and royalty owners.”

President’s 2016 budget proposal is

‘worst-case scenario’ for small oil

and gas producers

03 FEB 2015 | FOR IMMEDIATE RELEASE

mailto:[email protected]

http://www.dep.state.pa.us/

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PIPP

PO Box 103

Bradford, PA 16701-0103

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PERMIT NO. 15

duced during oil and gas extraction. The draft drilling rules

would allow those but with stricter controls.

“The use of these impoundments is a severe risk — to soil and

groundwater, to public health, and to the families whose life

savings may be embodied in the homes that suddenly lose

most, if not all, of their value when their drinking water wells

become contaminated,” he wrote in August 2014 after the

DEP concluded that several impoundments had leaked.

“There's no excuse for Pennsylvania failing to ban them and

mandating closed-loop, closed-container systems.

John Hanger, Mr. Wolf’s director of planning and policy and a

former DEP secretary, pledged to ban wastewater pits during

his unsuccessful gubernatorial campaign last year.

Those positions won’t necessarily translate into new rules, at

least not right away.

“It is hard to make predictions from campaign discussions and

appointments to secretary positions throughout the administra-

tion about what will be the outcome of the rule making pro-

cess,” said Kevin Garber, an energy and environmental attor-

ney with Babst Calland who helped write comments on the

proposed rules for industry trade groups.

He said the department’s next steps will largely be driven by

the comments that regulators received and how they respond

(Continued from page 5) to them.

“That’s where the real analysis and insight is going to begin,”

Mr. Garber said.

Environmental groups hope the administration keeps to its goal

of being a national leader in terms of regulating the industry.

For that to happen, the DEP under Mr. Wolf is going to have to

improve its drilling rules, said John Walliser, vice president for

legal and government affairs for the Pennsylvania Environ-

mental Council.

“At the same time, we’re anxious to see this move forward,”

he said.

The rules, which have been in the works since 2012, have to be

finalized by early 2016 in order to keep to a mandated timeline

for the development of regulations. DEP has committed to

putting the draft of the final rules out for another round of pub-

lic comments before the finished product is published, which

leaves little time for further delays.

If DEP misses the deadline, the regulation package is consid-

ered withdrawn and the review process has to start again.

“There’s been so much work put into it, you hate to see a ma-

jor change in direction,” Mr. Slagel said. “To take 10 steps

backwards and reinitiate a process just doesn’t make sense at

this point.”

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