HARRISBURG -- An article by four Canadian researchers argues that Pennsylvania's environmental regulators omitted thousands of natural gas wells from the list it compiled last year that tallied those potentially liable for the state's new drilling fee.
Leaving out wells that appeared to match criteria in the new state law would mean not only that Pennsylvania is missing out on millions in fee revenues, but also that the Department of Environmental Protection is not properly managing its records, according to the researchers.
DEP officials are vigorously defending their list of wells, arguing that the bulk of the wells identified in the article do not involve a so-called "unconventional" rock formation, like the Marcellus Shale.
In the Pipeline: Natural gas prices, DEP data and another mention of 'Promised Land'
On this week's "In the Pipeline," Erich Schwartzel takes a look at a new report on natural gas prices, research that questions DEP data and another mention of "Promised Land." (Video by Melissa Tkach; 1/11/2013)
Instead, these wells are much older, having been drilled long before the recent technological advances in hydraulic fracturing and horizontal drilling created the recent energy boom and related community effects that spurred last year's impact fee.
"It is absolutely clear to us, and should be clear to anyone doing the amount of research this study's authors claim to have done, that the modern shale wells being drilled today are the subject of the law -- not the conventional wells," DEP spokeswoman Katy Gresh said.
The article, published in the journal Environmental Practice last month, an issue that focused on hydraulic fracturing, was written by researchers from the University of Alberta in Edmonton and McGill University in Montreal.
In it, they analyze state data on the number of wells that have been drilled, are producing gas or waste, or have been the subject of violations, as well as historic data on wells going back as far as 1888. Researchers then compared what they determined to be "unconventional" wells under Act 13 against the DEP's list.
The article contends that an additional 1,500 recently drilled wells should have been included by DEP, plus another nearly 14,000 older wells or those drilled in a rock formation known as the Medina.
The researchers estimated that including those wells would have raised an additional $205 million to $303 million in impact fees last year.
Operators paid $204 million on a total of 4,300 wells in the fee's inaugural year.
But researchers also argued that the more over-arching problem was inherent flaws in DEP's reporting system. Joel Gehman, an Alberta School of Business professor who co-authored the report, disputed the agency's defense that he and his team misinterpreted the definition of "unconventional" and inappropriately included too many wells.
Instead, he points to the agency's statements about tweaking its initial list after it was available online, saying that a later version included few alterations.
"In other words, not only has the DEP admitted that it failed to comply with Act 13's reporting requirements, it would appear that it knowingly remains out of compliance to this day," Mr. Gehman wrote in an email.
In a statement, the agency responded that the article is "so flawed that it is not an acceptable document for publication."
DEP officials in part cited last year's legislative debates over the impact fee as proof that older, less lucrative wells -- which were virtually absent from those discussions -- were not intended to pay the fee, which cost $50,000 for horizontal wells and $10,000 for verticals.
They also said the agency has improved its data reporting system to more accurately reflect drilling dates and production amounts. The Pittsburgh Post-Gazette last year detailed issues with those databases not matching up, leading to production being reported for wells that were not listed as drilled.
Agency officials said operators now must enter a drilling date for any well on which they are reporting gas or waste production.
Harrisburg bureau chief Laura Olson: