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Marcellus growth justifiescalls for Pa. extraction tax

Wednesday’s front-page report about MarkWest Energy Partners’ construction project in Butler County offered a peek at the massive profits being generated by the natural gas boom going on in Western Pennsylvania. And judging from that view, the question should persist as to whether the industry is paying a fair price to the state for the privilege of drilling here.

MarkWest, based in Denver, is the largest natural gas processor in the Appalachian region. MarkWest doesn’t drill gas wells; rather, it buys the gas from companies like Rex Energy and Edgemarc, then processes the gas, separates it into dry and wet components, and distributes the processed gas by pipeline or tanker truck for sale to utilities and other markets.

Those processes happen at MarkWest’s Keystone complex on Hartmann Road in Jackson Township near Evans City. The expansion project announced this week will nearly triple the plant’s current capacity of 210 million cubic feet and 25,600 barrels per day over the next two years.

Kevin Hawkins, the manager of investor relations for MarkWest, said the expansion anticipates an increased output from Rex Energy, which recently acquired the gas leases for 208,000 acres from Royal Dutch Shell.

Apparently, MarkWest can’t expand quickly enough — construction on the existing Kehystone plant was completed only three months ago, along with a 32-mile pipeline.

Nationwide, MarkWest has 19 major processing and fractionation facilities under construction and seven more planned, according to the company’s website.

And even while the company is sinking vast resources into expansion of its processing capacity, it announced record revenue for the second quarter of 2014. Markwest is on pace to clear between $2 billion and $2.3 billion in 2014 and about the same amount in 2015. The cash stream enables the company to finance its own robust expansion and pay millions of dollars in quarterly dividends to shareholders.

MarkWest is making money in Butler County because its chief client, Rex Energy, is making money — and making a lot of it. And the question persists: shouldn’t the state get a fair share of that cash.

It is true that the state already gets a share of the revenue through impact fees of about $50,000 a year for each new well drilled into the Marcellus Share formation. This fee should not be considered a tax. It is intended to repair and restore infrastructure and other community property damaged by drilling. Unfortunately, a number of counties and municipalities getting a share of these fees are using them to balance their general fund budgets.

It’s also true that gas industry employees’ income taxes bolster the state treasury, as do taxes on income from lease payments made to private property holders.

But there’s no taxing meter at the wellhead itself — no direct tax on the amount of gas being extracted. And it seems fundamentally logical that someone literally sucking money from beneath the state’s surface should cough up a share of that money for the state’s benefit.

Gov. Tom Corbett opposes an extraction fee. Corbett has maintained the prospect of an extraction tax might discourage Marcellus gas development in Pennsylvania.

MarkWest’s announcement seems to answer the governor’s concern. The gas is here, and so is the gas industry. And given the global demand for energy, the industry will be here until the gas is used up.

Even if an extraction tax slows the expansion, a more controlled pace might not be a bad thing.

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