PA Business Climate isn’t Winning any “Miss Congeniality” Contests

Why would one of Pennsylvania’s largest natural gas producers suddenly switch from selling all non-Pennsylvania assets to purchasing a $3.3 billion Houston company that operates exclusively in Louisiana?

A Dallas Morning News article suggests Pennsylvania’s less than “congenial” business conditions.

Range Resources, which in 2004 drilled the first commercial horizontal well in Pennsylvania’s Marcellus Shale, plans to purchase Memorial Resource Development partly because of regulatory hurdles in Pennsylvania and other Northeastern states.

Energy companies are trying to cope with constant calls for higher taxes, new methane emissions standards, a dramatic overhaul of drilling regulations, and pipeline delays. At the same time, the region is experiencing a severe and prolonged drop in natural gas prices.

The Dallas Morning News reports:

“The U.S. gas market is Balkanized,” said Subash Chandra, an analyst with Guggenheim Securities. “And the Appalachian Basin is becoming increasingly isolated.”

Pipeline projects in Pennsylvania and New England running into regulatory issues over the past year include Northeast Energy Direct, Constitution, Rover and PennEast. In some cases, the delay could be a matter of months; for others, longer.

Keeping the natural gas from getting to market in the Northeast makes retail prices bounce around more and can contribute to shortages in an unusually cold winter. And it pushes some producers to the sidelines for a while.

“A couple of the producers with the best cost of production in North America are sitting on their hands for a couple of years,” Miller said.

In Pennsylvania, the industry has shed thousands of jobs, and the number of drilling rigs operating in the state is at 2007 (pre-boom) levels. The paper continues:

But in the meantime, the Range purchase of Memorial means Range will have options. It can push development in Louisiana while waiting for more congenial conditions in Pennsylvania.

Reporting on the transaction, Forbes says, “[P]ipeline bottlenecks in the northeast have gotten so bad that Range has been realizing sale prices 66% below market.”

Before punishing the natural gas industry with a severance tax or regulations of questionable value, Pennsylvania politicians should consider congeniality—or common sense.

Unfortunately, a lack of it seems already to have driven one company to invest $3 billion in Louisiana instead of in Pennsylvania.