Rendell declares Pa. gas severance tax dead for 2010

Pennsylvania Gov. Edward G. Rendell (D) declared a natural gas severance tax officially dead for 2010 on Oct. 21, blaming Republicans in the state Senate for not offering what he considered a reasonable response to his request for a new proposal two days earlier.

Rendell asked Senate and House Democrats and Republicans in an Oct. 19 conference call for counterproposals to a compromise he outlined the previous week after the Democrat-controlled House passed a 39¢/thousand cubic feet levy on Sept. 29 which the Senate’s Republican majority immediately said would not be considered.

The governor proposed a severance tax in February of 5% of the gas’s value at the wellhead, plus 4.7¢/Mcf. On Oct. 11, he offered a compromise which would have called for a phased-in tax of 3% the first year, 4% in the second, and 5% in the third. Rendell said that he met several times with legislative leaders and gas producers as he developed the proposal. He said that when he received no reaction and saw that Senate Republicans did not intend to bring the House-approved bill up for debate, he made the conference call.

One day later, Senate GOP leaders responded with a letter which Rendell said restated their previous proposal for a 1.5% severance tax, with other provisions that the governor said provide giveaways to producers. House Republicans did not immediately respond, he added.

“It is irresponsible for Senate and House Republicans to refuse to compromise and simply turn their backs on these negotiations after days and weeks and months of work,” Rendell said on Oct. 21. “They signed a pledge to the people of Pennsylvania to enact a tax that requires drilling companies to pay their fair share for removing our state’s natural resources from the ground, and now they are walking away from that commitment.

“Their clear unwillingness to change their previous proposal or to resolve differences with the House Democrats and with my administration makes it obvious that they have killed the severance tax in this legislative session,” he continued. “It is a broken promise, as well as a misguided policy decision that will harm our environment, will leave our local governments without the financial wherewithal to deal with the impacts of drilling in their communities, and will increase the budget challenges that Pennsylvania will face in the years to come.”

Rendell, who is not running for re-election, noted that Pennsylvania’s general assembly has begun its election recess, adding that Senate Republicans have said they will allow no votes when the House returns for a lame duck session on Nov. 8. “With little time left to enact the severance tax, the Senate and House Republicans’ adamant refusal to advance a meaningful counter-proposal speaks volumes about their intentions,” he said. The tax’s prospects in 2011 are not particularly good since Attorney General Tom Corbett, a Republican who could succeed Rendell as governor, has said that he would not raise taxes if he’s elected.

Meanwhile, Kathryn Z. Klaber, president and executive director of the Marcellus Shale Coalition in Canonsburg, Pa., said that the organization and its members will continue to work with the state’s lawmakers and agencies to modernize Pennsylvania’s legislative and regulatory framework.

“As part of a well thought out and considerate comprehensive overhaul that includes legislative and regulatory modernizations, our industry maintains its support for a competitively structured severance tax that allows for capital recovery and reinvestment, comparable to other leading shale gas producing states, such as Arkansas, Texas, and Louisiana,” she said on Oct. 21.

“The leadership in the state senate deserves credit for their months of work in crafting a competitive, well-balanced package of reforms that would help ensure Pennsylvania remains a leader in responsible shale gas development,” Klaber added. “While our commitment to achieve these shared goals remains steadfast, we’re regretful that there wasn’t closure brought toward achieving these commonsense initiatives during this legislative session. We must get this historic opportunity right; we cannot afford not to.”

Obama’s spill panel will publicly deliberate

US President Barack Obama’s independent oil spill commission has scheduled another meeting for May 13 where it will publicly deliberate on preliminary findings of its investigation of the Apr. 20 Macondo well accident and subsequent massive crude oil spill.

The commission also posted 4 preliminary staff reports online at www.oilspillcommission.gov/library#supporting-documents dealing with decision making in the spill response’s unified command, the use of surface and subsea dispersants, spill response challenges in the Arctic, and the amount and fate of the spilled oil.

White House officials were miffed with an assertion in one of the draft reports that the administration was not aggressive in determining how much oil actually was leaking early on, and that it prematurely reported on Aug. 4 that most of the spilled crude had biodegraded.

“Look, I think it is important to understand that our response attacked the oil spill in an unprecedented way,” Press Secretary Robert Gibbs said during his Oct. 7 daily briefing. “It was the largest environmental disaster that we have ever faced and we attacked it with the largest federal response. We did all that was humanly possible in the most challenging of environments.”

Jane Lubchenco, National Oceanic and Atmospheric Administration administrator, sent a letter to the spill commission that same day that worst case scenarios issued early in the response had nothing to do with flow rate calculations, but did inform the Unified Command’s preparations for possible eventualities. “And the worst case scenario was made public,” she added.

Commission members so far have confined themselves to questions and short observations. The meeting in another few days will give them a chance to say much more. It could be interesting.

New regulations, old dilemma

Once US Interior Secretary Ken Salazar announced his anticipated offshore safety regulations on Sept. 30, it became immediately apparent that the Department of the Interior and its US Bureau of Ocean Energy Management, Regulation, and Enforcement must answer a traditional regulatory question: How prescriptive can their new rules be before they quit being effective and start causing serious problems?

Industry sources told me that their biggest immediate concern is with the blowout preventer requirements in the interim final rule aimed at strengthening offshore oil and gas safety equipment, well control, and BOP requirements. They basically worry that DOI and BOE will mandate specific equipment which would not be effective in some situations or work as well as well as other approaches outside the BOPs. Producers have said that each well is different, and that they need to be able to adapt quickly when situations change, which raises a question about reporting requirements.

Federal regulatory policymakers generally have tried to avoid overly prescriptive “one size fits all” requirements in recent years so regulated industries could be more flexible in addressing problems. The fact that the Apr. 20 Macondo well blowout and rig explosion took 11 lives and subsequently spilled 5,000 bbl of crude into the Gulf of Mexico has largely trumped this philosophy the past few months. Too much is at stake when people die, a major spill results, and the livelihoods of a US region’s entire population are put in jeopardy, proponents of stricter regulation contend.

Everyone seems to agree that more information needs to be shared and employees need to be better trained. When the International Association of Drilling Contractors testified in New Orleans on July 13 before President Obama’s independent oil spill commission, it recommended subjecting all offshore personnel to industry and government-accepted standards for well control such as IADC’s own Well Control Accreditation Program (WellCAP). IADC also has a rig-floor orientation program, RIG PASS, which many of its members use for their new employees.

A fact sheet which BOE issued with its announcement of a new offshore workplace safety rule said operators would be required to develop and maintain a Safety and Environmental Management System on each rig and platform. Each SEMS is a comprehensive management program to identify, address, and manage offshore operational safety hazards and impacts, it explained. “Many companies objected to this common-sense rule when we put it out for public comment before Apr. 20,” Salazar said.

The workplace safety rule makes mandatory current voluntary practices in American Petroleum Institute Recommended Practice 75. BOE said that it was preparing to finalize it before the Macondo well accident and subsequent crude oil spill. It continued to analyze RP 75 and decided to incorporate all of it in its workplace safety rule. It also said that it would address other safety concerns it identifies in future rulemakings.

These could include possible work hour limits and other ways to combat employee fatigue. BOE did not mention this in its workplace safety fact sheet, but the federal government has tried to address this issue in other industries as well as other parts of the US oil and gas business. I’ll be surprised if it isn’t raised here.

I won’t be surprised if API, IADC, the Independent Petroleum Association of America, and the National Ocean Industries Association weigh in with substantial comments and recommendations concerning both of these new regulations in the coming weeks. Too much is at stake for them not to.