Fitch: Local regulations could slow natural gas boom

Adding some control over oil and gas extraction activities to local governments' powers could slow the expansion

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Fitch Ratings-New York-23 December 2013: Adding some control over oil and gas extraction activities to local governments' powers could slow the expansion of the industry in certain parts of the country and related tax revenue growth, Fitch Ratings says.

Asserting more control over this growing economic sector could benefit local governments.

On Dec. 19, the Pennsylvania Supreme Court ruled that local governments can use local zoning laws to restrict drilling within their borders.

This decision follows another in Colorado this month that stopped hydraulic fracturing in some towns in the state. In Texas, local governments have passed limitations on the amount and location of drilling activities.

In our view, changes like these will slow the pace of potential revenue growth from oil and gas-related activities for both states and local governments as managing new local regulations will require some time.

For Pennsylvania, the growth projections are significant. The U.S. Energy Information Administration showed that, from 2011 to 2012, the commonwealth's natural gas production grew by 72% and the state became the country's third largest producer.

However, we do not expect the slowdown in this growth to have a direct impact on the state's budget. Pennsylvania does not levy a tax based directly on oil and gas production. We believe local governments in Pennsylvania will generally benefit from this legislation as they gain greater control over where and how these activities will take place. We also expect many of them to be open to oil and gas exploration as their communities historically grew during decades of coal mining and their employment growth rates have lagged national averages.

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