In Pennsylvania, Natural Gas Industry Flexes Its Muscle
By John Gramlich, Staff Writer
DAMASCUS TOWNSHIP, Pa. — The oil and gas industry knocked on Marian Schweighofer's door in 2007, offering her $125 an acre for the right to drill for natural gas on her property. It arrived in the form of a "land man," a company representative whose job is to convince private landowners to lease as much of their property to gas firms as possible.
Schweighofer didn't realize at the time that the 712-acre farm she and her husband own in this rural community three hours north of Philadelphia sits atop the Marcellus Shale, a rock formation that stretches from Ohio to New York and across two-thirds of Pennsylvania. The formation now is believed to hold the largest untapped natural gas reserves in the United States. "We didn't even know the term 'Marcellus Shale' at the time," Schweighofer recalled one recent afternoon while she and a neighbor canned peaches in her kitchen.
Schweighofer sensed from the offer she received — and similar ones reported by her neighbors — that something big was about to happen in her area. But while she was interested in signing a contract, she decided to hold off. Instead, she formed an alliance of local property owners to study gas drilling further and, potentially, to negotiate a better deal in the future.
It was a shrewd decision. Schweighofer since has agreed to allow drilling on all 712 of her acres for $3,000 an acre — more than 20 times what she was initially offered — plus royalties on any natural gas that eventually is discovered. Such deals are so common here that more than 80 percent of the 50,000 acres in Damascus Township already has been leased to gas companies, even though gas extraction is not yet authorized in this part of the state because of its proximity to the federally protected Delaware River.
Schweighofer's story underscores the intense interest that the oil and gas industry holds in Pennsylvania these days. Tens of thousands of new gas wells have sprung up around the state in recent years, and the industry is filling hotels, bringing the bustle of more trucks to the state's roads, and even causing more private airplane traffic as executives come and go. Governor Ed Rendell has described the companies' interest as a "modern-day gold rush," and few doubt that it is boosting the state's economy. One Penn State University professor and minerals expert says Pennsylvania's gas supply is so large that the state might as well become "an OPEC nation."
Pennsylvania's gas rush, however, is opening up a gusher of another kind, too. As the industry races to tap the Marcellus Shale and gain a foothold in a region that is attractively close to the voracious energy-consuming markets of New York and Philadelphia, it is pouring hundreds of thousands of dollars into the campaign accounts of state lawmakers and candidates running for governor. It has hired one of the biggest names in Pennsylvania politics — former governor and U.S. Homeland Security chief Tom Ridge — at $900,000 a year to lobby for its interests, which include avoiding a severance tax, which every other major gas-producing state collects. And it has snatched three top aides from the Rendell administration, leading to speculation that Rendell himself would consider lobbying for the industry after leaving office, even though he has favored a modest severance tax.
Meanwhile, through its leases with landowners like Schweighofer and her neighbors, the industry has enlisted a small army of private citizens who have become vocal supporters of drilling, even as regulators decide whether to ban it in sensitive environments such as the Delaware River watershed — a pristine natural area that provides drinking water to Philadelphia, New York City and much of New Jersey.
Pennsylvania voters this year will choose 228 legislators and a new governor, and the gas industry has been making its presence felt in the form of aggressive campaign contributions and lobbying. A May report by Common Cause of Pennsylvania, a government watchdog group, found more than $7 million in combined campaign donations and lobbying expenses from the gas industry to state politicians in recent years — including a tripling of lobbying expenses over just the last three years.
The giving has ramped up considerably as lawmakers have debated placing a severance tax on natural gas. Currently, Pennsylvania's revenue from natural gas comes primarily from fees paid for drilling permits — and the industry would like to keep it that way.
Attorney General Tom Corbett, the Republican nominee for governor and an opponent of the severance tax, is the "clear favorite" of the industry, according to the Common Cause report. Corbett received $284,000 from natural gas drillers last year alone, while Democratic gubernatorial nominee Dan Onorato, a severance tax supporter, received $59,000. Onorato has received individual contributions of $20,000 and $15,000 from energy firms, but Corbett has received the largest single documented contribution — an eye-popping $150,000 donation last December from Kim Pegula, the wife of the founder of East Resources, a gas exploration company that was recently purchased by Royal Dutch Shell for $4.7 billion.
On the campaign trail, Corbett echoes the argument offered by the gas industry against a severance tax, saying it will drive the industry out of Pennsylvania and into neighboring states. "The severance tax being proposed by Governor Rendell is really to fill a short-term budget hole that was created because of the governor's excessive spending, whereas Tom Corbett wants to build this industry for the next generation" by not taxing it, says Kevin Harley, a Corbett spokesman.
But many industry experts, landowners, environmentalists and others say that gas companies are already so entrenched in Pennsylvania — with manpower, equipment and more than 70,000 active wells — that there is little chance they will move somewhere else just because they must pay a tax. After all, the untapped gas they seek is in Pennsylvania.
"The argument that they can't afford a tax is ludicrous," says Jan Jarrett, chief executive of PennFuture, an environmental group that favors a severance tax as a way to pay for more conservation programs and oversight of the industry. Jarrett notes that many gas drillers in Pennsylvania don't even pay the state's 9.9 percent corporate income tax rate because they are structured as limited liability corporations or limited partnerships, allowing them to pay the 3.07 percent personal income tax instead.
Beyond the halls of power in Harrisburg, the gas industry has been working hard to win over ordinary Pennsylvanians, too.
It has taken out full-page newspaper advertisements promising an economic revival for a Rust Belt state known for played-out coal mines and long-shuttered steel plants. It funded a widely circulated Penn State study that warns of the economic impact of a severance tax. Meanwhile, it takes care to point out that natural gas is a clean-burning fuel that could help the United States reduce its dependence on foreign oil.
In Damascus Township and other parts of Pennsylvania that abut the Delaware River, however, the industry has run up against its most serious obstacle: the Delaware River Basin Commission, an obscure federal regulatory agency that has jurisdiction over the watershed and so far has refused to allow drilling to commence. At issue for the commission is whether natural gas drilling — and particularly a commonly used technique known as "hydraulic fracturing" — will contaminate local drinking water supplies, which happen to include those for many of the East Coast's biggest urban areas.
Hydraulic fracturing, or "fracking," involves blasting huge amounts of water, sand and chemicals deep underground to break apart rock and free up natural gas, and there have been hundreds of reports of groundwater contamination nationally in areas where fracturing takes place. State regulatory officials in Pennsylvania and elsewhere say they have found no scientific link between the process and tainted water, and they blame contamination primarily on human error such as shoddy well construction or accidental chemical spills. The federal EPA has launched its own study of fracturing.
"There's no one here who doesn't have an opinion about it," says Fritz Mayer, editor of The River Reporter , a local weekly newspaper whose entire staff now covers the drilling beat. The paper's circulation has risen because of intense interest in the debate, Mayer says.
What is notable about the argument here, however, is the extent to which the industry has gotten local activists to fight for its cause — led by the property owners' group that Schweighofer set up three years ago. The group, after all, is counting on not only the lease payments it has been promised by the industry but royalties that would eventually come from gas production itself.
Known as the Northern Wayne Property Owners Alliance, the group now represents more than 1,500 families who together own more than 100,000 acres of leased land — much of it the property of dairy farmers who have been hit hard by the recession. In e-mailed press releases, opinion pieces in local newspapers and in legal memos to the Delaware River Basin Commission, the group has fought every bit as hard for drilling as environmentalists have against it. The feeling locally is that the pro-drilling side will win.
The industry, at least, seems to think so. Already, an exploratory gas well has been constructed within sight of the Delaware River, and the road that leads to it through a dense forest has been improved in anticipation of increased truck traffic.
Stateline's Victoria Kleger contributed to this report