Marcellus Works and profitable firms
I said last week I was eager to read my colleague Brent Burkey's article on the proposed Marcellus Works legislation working its way through the state legislature. My anticipation was well rewarded. Please go and read Brent's report right now, if you haven't already.
I was most interested in seeing how the rationale for the bills would be explained. The Republican caucus, which is backing Marcellus Works, generally espouses free-market economic solutions and criticizes government subsidy programs. So how is Marcellus Works different? Here's what spokesman Steve Miskin said, according to Brent's story:
"(T)he Marcellus Works package is not about picking winners and losers; it is about leveraging a state resource to create jobs, said Steve Miskin, spokesman for House Republicans.
The tax credits are intended to maximize employment opportunity, grow the tax base and build upon the state's success — without overtaxing the burgeoning industry, Miskin said."
That last phrase – "without overtaxing the burgeoning industry" – leaped out at me.
There seems to be this perception that the drilling of shale gas is a new or emerging industry -- a tender shoot, as it were.
In some sense, it is. But it's not as though it came out of nowhere. It's just the latest phase of the energy extraction industry, which, in case you were asleep during the whole 20th century, is one of the largest and wealthiest sectors around.
These aren't a couple of guys at a business incubator tweaking a nascent technology. These are large, publicly listed companies at the heart of our economy.
Marcellus Works would subsidize natural-gas vehicles to the tune of $60 million a year, according to Brent's article. Out of curiosity, I decided to see how that stacked up against what some of the major companies drilling in Pennsylvania earned last year.
Five of the largest drillers in Pennsylvania, according to the state Public Utility Commission, are Chesapeake Energy Corp., Talisman Energy Inc., Range Resources Corp., SWEPI (short for Shell Western Exploration and Production Inc., a unit of Royal Dutch Shell) and Anadarko Petroleum Corp. The results I'm about to quote are company totals for all operations, not just their Pennsylvania segments.
Chesapeake had a bad year last year, losing $940 million. The other companies, however, all made money. Range made $13 million, Talisman made $132 million, Anadarko made $203 million and Shell — pause for a second here — made $26.6 billion.
In other words, Talisman, if it chose to, could pay for all of Marcellus Works with half its 2012 profits. Shell could pay for it with a little over one-fifth of 1 percent of what it made.
And don't forget, natural-gas prices were at or near historic lows last year. Companies that are primarily natural gas drillers (that is, Range Resources as opposed to Shell) can expect to do better as prices head back up.
There's nothing wrong with energy companies making money, even gobs and gobs of money. It costs millions of dollars to drill a single deep gas well, and there's lots of risk involved.
But when companies are profitable, you'd think they'd be able to fund new business opportunities on their own. Isn't that part of how the system works?
I don't think there are too many Pennsylvania taxpayers who think a company that made $26.6 billion last year needs their help. Or who think we need natural-gas vehicles more than we need, say, to keep teachers in our kids' schools and maybe fix a few potholes.
If I'm wrong about that, let me know.