The Pennsylvania Department of Environmental Protection didn’t report all the state’s wells under Act 13, which could result in the loss of hundreds of millions of dollars.
A recent report estimates between 15,300 and 25,100 unconventional gas wells were left off the DEP’s Act 13 report for last year. This means the state, county and municipal governments are forfeiting anywhere from $205 million to $303 million in fees in 2012 and up to $.75 to $1.85 billion over these wells’ lifetime, says the report, ‘An Analysis of Unconventional Gas Well Reporting under Pennsylvania’s Act 13 of 2012.’
It was written by Joel Gehman, a professor at the Alberta School of Business at the University of Alberta in Edmonton, Canada; Diego Mastroianni, a doctoral student at Desautels Faculty of Management at McGill University in Montreal, Canada; Angela Grant, a graduate student of Bioresource Engineering in Agricultural and Environmental Sciences at McGill University; and Dror Etzion, a professor in the Desautels Faculty of Management at McGill.
But DEP spokesman John Poister said Wednesday that those wells not reported did not meet the criteria of Act 13.
“We are confident that all wells eligible for the fee have been included in the list of data provided to PUC for their response,” Poister said. “The wells he believes should be included do not meet the requirements of the legislation to be considered for the impact fee – they do not come from unconventional formations, were not produced using high-volume hydraulic fracturing, and or do not produce more than 90 mcf/day (thousands of cubic feet per day).”
The two sides appear to be interpreting the law differently. Gehman believes that there are 10 other shale formations that should fall under Act 13’s umbrella as unconventional formations and subsequent impact fees.
“With what we believe is an objective interpretation of (Act 13), and based on what we currently know about the geology of Pennsylvania, there are 12 formations that meet the requirements of the act as an unconventional formation,” Gehman said. This number includes both the Utica and Marcellus shale formations, he said.
Act 13 defines an unconventional formation as “a geological shale formation existing below the base of the Elk Sandstone or its geologic equivalent stratigraphic interval where natural gas generally cannot be produced at economic flow rates or in economic volumes except by vertical or horizontal well bores stimulated by hydraulic fracture treatments or by using multilateral well bores or other techniques to expose more of the formation to the well bore.”
In its definition of an unconventional formation, Act 13 does not mention the Marcellus or Utica shale formations specifically.
Act 13 also required drillers to pay impact fees of $50,000 for each horizontally drilled well and $10,000 for each vertical well. The state collected more than $204.2 million in impact fees.
Gehman said that there were 1,524 spud unconventional gas wells omitted from the DEP’s Act 13 report. The rest of the omitted wells came from wells prior to 2002, the report says. These numbers came within 1 percent of data released by the Carnegie Museum of Natural History, which reported 6,503 unconventional wells as permitted, drilled, or producing in 2011, the report said.
“What needed to be done was a complete analysis of drilling in Pennsylvania and it’s clear that (the DEP) has not done that or it has not been made public,” Gehman said.
DEP officials say there are a few major factual errors regarding the report’s findings.
“These concerns include incorrect or incomplete consideration of the defined terms in Act 13 of 2012, failure to consider the legislative intent behind Act 13 of 2012, failure to recognize that vertical gas wells do not pay the impact fee unless they produce more that stripper gas well volumes, and failure to recognize the considerable enhancements made to the spud report created by the department since the manuscript was originally drafted,” said DEP spokesman Poister.
Another DEP spokesman, Kevin Sunday, also said Wednesday that the DEP did not underreport wells under Act 13.
“DEP provided an accurate and complete list of wells to PUC to administer the impact fee, and Pennsylvanians are not missing out on any impact fee revenue whatsoever,” he said. “The wells referenced in the report as having been omitted in fact do not meet the basic criteria for the impact fee, and the authors know this. This deliberate misinformation is nothing more than an attempt by an academic to seek publicity for himself.”
Gehman also points out in the report that prior to Act 13, Pennsylvania was the only one of the 28 major gas producing states that didn’t impose fees on natural gas drilling.
The report also suggests this isn’t the only problem with the regulatory agency.
“Rather than an isolated incident, evidence suggests information management is a systemic and recurring problem within the DEP and its predessor agencies,” it says.