PA Senate Hears Drilling Complaints

A hearing last evening at Misericordia University was called by the Senate Majority Policy Committee to explore the economic and environmental impact of drilling in the Marcellus. The most common theme throughout the evening was the time-consuming and lengthy permitting process and cumbersome regulations making it difficult for them to operate in Pennsylvania.

"I have great hopes for what the Marcellus shale play might still hold for Pennsylvania. Unfortunately, my experience to date does not lead me to be very optimistic," Wendy Straatman, president of Exco-North Coast Energy Inc...........DEP permitting delays that are "unlike anything we have seen in any other state in which we operate."

Scott Rotruck of Oklahoma City-based Chesapeake Energy Corp., predicted "ominous" consequences for Marcellus development if Pennsylvania's regulatory environment doesn't become more welcoming.

The state needs to be "careful we are not killing the goose that's laying the golden egg," said Sen. Mary Jo White, R-Venango.

"There has to be a smart way to protect what we need to protect, and at the same time (prevent) a delay that really serves no purpose," said DEP Secretary, John Hanger. "I believe there's a learning curve here for everyone involved."

Industry executives also opposed a tax on natural gas that the administration of Gov. Ed Rendell has said it is considering. "New taxes will stymie Marcellus development," said Ray Walker Jr., vice president of Range Resources Corp

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Drillbits

How a Player Plays the Play

In recent days, after leasing in the Marcellus shale had stopped almost completely, the last in a long line of the major E&P companies have sent lease rescission letters out to landowners who had signed up in the past few months. Two months ago, at the head of that line was, of course, Chesapeake Energy. Within a matter of days, Range Resources followed Chesapeake's lead; then Chief followed suit, and more recently, Cabot, East Resources and XTO all did too. Along the way, most of the smaller outfits also dropped out, and finally, last week, even zero debt Rex hauled its box of letters down to the post office.

So, while all this was going on, who do you think had his landman building mailing lists for the next round of lease offers,...you know, of all of those irate property owners that were just dumped by the other companies? And, guess who just mailed a big box of those letters in Greene County, PA last week? .......yep, right again, Aubrey McClendon.

While there are legitimate concerns among some of these companies about expending cash and credit lines in the face of a credit crunch and impending recession, most, in the wake of Chesapeake's walking away, just decided to wait it out for lower lease prices. It will be interesting to see how that gambit works out. As for Chesapeake, it will be really interesting to see how the new offers stack up against its recent $5,800/acre effective flip of previously acquired leasehold to StatoilHydro.

Also last week, Chesapeake made over 25 permit applications in one of the NWPA counties...and why not? It is becoming increasingly clear that the economics of the Marcellus are the best of the shale plays. Natural gas futures are still in contango and with the Marcellus' Appalachian premium, will still bring $8.50-$9.50/mcf for the next two years while input costs: day rates, pipe, supplies and services are all coming down.

As so often happens in the O&G business.......the cycle begins anew.