Dave Spigelmyer

CRANBERRY TWP — A room full of bankers last week got the latest scoop on the economics of the shale gas industry in Pennsylvania, and it wasn’t overly positive.

After nearly a decade of bustling activity, the declining market price of natural gas combined with an uncertain regulatory environment is causing gas producers to scale back and in some cases look elsewhere.

Dave Spigelmyer, president of the Marcellus Shale Coalition, spoke Thursday at the Community Development Corporation of Butler County’s annual Bankers Breakfast at the Pittsburgh Marriott North.

The coalition, headquartered in North Fayette Township, Allegheny County, is a trade association that represents businesses working in the shale plays of the Appalachian region. Members range from small independent businesses to multinational corporations.

Spigelmyer of Cranberry Township said many coalition members already have announced plans to roll back drilling activity and to significantly reduce capital expenditures.

“We’ve already seen for 2015 about $9 billion of capital leave Pennsylvania,” he said. “We’re going to see a bit of a tightness here in 2015.

“You’ll see fewer rigs active. You’ll see fewer supply chain jobs generated.”

For example, Rex Energy, which is the largest producer of natural gas in Butler County, in its February report detailing 2014 operations and financial performance, estimated 2015 capital expenditures in the range of $180 million to $220 million. That is down from the State College-based producer’s original estimate of about $350 million to $365 million.

Spigelmyer said in some ways the industry has been a victim of its own success.

Companies are producing vast quantities of gas — and becoming more efficient at the process — contributing to declining prices. For example, consumers were paying about $20 per thousand cubic foot of natural gas to heat their homes in 2008 and are now paying less than half that amount, he said.

However, Spigelmyer said the state is creating issues that are stalling development, first by repealing portions of Act 13 of 2012 that amended the state’s oil and gas code and now with Gov. Tom Wolf’s proposal to impose a severance tax on gas extracted instead of an impact fee on gas producers.

Spigelmyer said the parts of Act 13 that were repealed eliminated a statewide set of rules to regulate natural gas development. Now, each municipality can enact its own rules.

He equated the move to what it would be like to acquire and maintain a different driver’s license to drive through every municipality in the state.

However, he said Gov. Wolf’s proposal to replace gas impact fees with a severance tax would be even more detrimental to the gas industry and to the state.

Spigelmyer said Pennsylvania already is losing regional shale development opportunities to Ohio, where the severance tax of 2.5 cents per thousand feet of extracted natural gas is more appealing to producers than Pennsylvania’s impact fee.

Wolf’s proposal follows West Virginia’s tax model of a 5 percent severance tax on the value of gas at the wellhead plus 4.7 cents per thousand cubic feet of gas extracted. He claims it could generate as much as $1 billion for the state in its first year.

Under the current impact fee model, the state has collected more than $632 million, according to the state Department of Environmental Protection.

Spigelmyer said Wolf’s $1 billion estimate would fall far short because it is based on current activity levels and not accounting for producers who leave to do business elsewhere.

“It makes us uncompetitive with every other shale play across the U.S,” he said. “We will see job reduction. We will see economic deterioration in the shale region.”