We discuss five things that happened the week of February 9, 2015:
- Gov. Wolf Officially Proposes His Severance Tax
- LNG Tax-Parity Bill Introduced in Congress
- Senate Holds Hearing on Clean Power Plan
- State of the Industry in Flux
- Colorado Editorial Boards Not Looking to Stop Fracking
Our interview this week is with Mark Stansberry of the GTD Group.
1. Gov. Wolf Officially Proposes His Severance Tax
Pennsylvania’s new Democratic Governor Tom Wolf campaigned on the idea of imposing a new 5% severance tax on the natural gas industry. During the campaign, he said the new funds would be spent primarily on education, infrastructure, and renewable energy. It is clear from the written proposal he submitted to the legislature, however, that the funding is not earmarked for any particular purpose. He did say the “lion’s share” would go to education, and that is probably clear from naming the proposal the “Education Reinvestment Act.” The 5% tax would replace the existing Pennsylvania “impact fee” on each well drilled.
Local industry groups were not impressed:
— Marcellus Shale (@MarcellusGas) February 11, 2015
2. LNG Tax-Parity Bill Introduced in Congress
Senators Richard Burr (R-NC) and Michael Bennet (D-CO) introduced legislation to tax liquefied natural gas (LNG) at the same rate per unit of energy as diesel. As the Senators explained, both diesel and LNG for highway use are currently taxed at 24.3 cents per gallon. It takes about 1.7 gallons of LNG to equal the energy in one gallon of diesel fuel, so LNG is taxed at about 170% of the rate of diesel fuel on an energy equivalent basis. The Senators are proposing that the 24.3 cent tax would be imposed on an “energy equivalent of a gallon of diesel.” The bill, S. 344, is similar to one that passed the Senate last year and also moved through the Finance Committee as an amendment last week.
Here is Sen. Bennet discussing the policy at a hearing last year:
And here is Sen. Bennet discussing the provision again last week.
3. Senate Holds Hearing on Clean Power Plan
On February 11, 2015, the Senate Environment and Public Works Committee held a hearing on the Environmental Protection Agency’s (EPA’s) Clean Power Plan. The plan would require major reductions in carbon emissions from existing U.S. power plants. Janet McCabe, the EPA’s Acting Assistant Administrator for the Office of Air and Radiation, came in to explain and defend the rule. Most Democrats on the Committee underscored their concerns about climate change and praised the President’s plan. Republicans largely avoided a scientific debate, but the Committee appears poised to hold a hearing on climate change science in the near future. Republicans objected that the rule is outside the EPA’s authority, and will be costly but do nothing to reduce worldwide emissions. The Natural Resources Defense Council (NRDC) was singled out by Republicans as having to much influence over this rule. Perhaps the biggest challenge is that each state has its own emissions target set by the EPA, and each state feels like they are unique and many will object to their target. Unfortunately, the panel did not get a clear response on what the EPA will do if a state completely refuses to participate in the program.
4. State of the Industry in Flux
Four very interesting articles:
- The Energy Information Administration (EIA) had a blog post showing how the U.S. continues to dominate shale gas and tight oil production.
- Reuters had an article showing the U.S. burned a record amount of natural gas for electricity last month.
- Foreign Policy reported on a report from the International Energy Agency (IEA) said that the rise in U.S. production coupled with weak demand and OPEC’s refusal to cut production will drastically impact geopolitics. The result will be smooth sailing for the U.S., some discomfort for the Persian Gulf, and disaster for “petro states” like Venezuela.
- Bloomberg Business had an article showing that oil production is continuing to rise even as the number of active rigs go down. This phenomenon happened in natural gas production in recent years, as the most effective rigs are the ones that will continue working and their process is rapidly improving.
5. Colorado Editorial Boards Not Looking to Stop Fracking
Two editorial boards in Colorado are arguing for the continued production of oil and gas, with proper protections.
- The Denver Post ran an editorial entitled “Denver should ignore fractivists.” The board argued that the move to ban fracking in Denver is a political ploy. The board noted that oil and gas production is important to the Denver economy. The board supports regulation but not fracking banks or the “demonization” of the industry.
- The Greely Tribune editorial board ran an editorial called “Colorado Oil and Gas task force must find compromise on contentious drilling issues,” saying they are skeptical about the oil and gas task force, but have some hope. The board noted a number of consensus items, including increased staffing for regulators and more transparency. The board said that the voters will react negatively if the legislature fails to act.
Interview with Mark Stansberry of the GTD Group (Starts at 28:31)
Mark began his career in oil and gas by working for Sen. Dewey Bartlett (R-OK) during college. Sen. Bartlett’s family owned the Keener Oil and Gas Company, an independent producer in Oklahoma. Following college, Mark was trained as a field land man with an individual who owned his own company, Cooper West. Mark later moved up to be an in-office land man.
Mark explained that a “land man” is used do describe a person that performs range of services for an exploration company. Often this means purchasing the right to drill. A field land man is often someone who goes to the local courthouse to determine the ownership of certain mineral rights. Sometimes a land man has to “clear” a title, say by addressing an outstanding mortgage. Land men also manage properties that are held by an exploration company. Right of ways also need to be in order, and any damage to a site needs to be addressed. Mark pointed out that computers were not in use when he started, and today’s computerized records make the business much easier. Many land men work independently, but oil and gas companies also have in-house land men. Mark said the work requires both technical knowledge of land rights and negotiation skills.
Today Mark works at the GTD Group, which manages properties in several states. The company also does consulting on international investments. He has also done a great deal of advocacy on energy. He has written a book called “America Needs America’s Energy” and also has a website with more information. Mark said that oil and gas has had very positive impacts on Oklahoma and the country in general.
Last year, Mark launched a new educational campaign called “America Needs America’s Energy: It is Time to Tell Our Story!” He said that low oil prices are going to be hard on Oklahoma and the surrounding region, but the local economy is well diversified and policymakers need to be prepared for oil prices ticking back up. On the policy side, Mark argued that the Congress needs to adapt to energy abundance by allowing exports. To Mark, the abundance of a commodity means there should be an opportunity to export. Secondly, regulations should not unnecessarily impede oil and gas production. He believes there are great opportunities in natural gas vehicles once the proper infrastructure is built out.