Pa. Independent Oil and Gas Association says drillers are already paying their fair share

Last updated: June 27. 2014 12:15AM - 1557 Views
By Jon O’Connell

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With all this talk of a severance tax on natural gas drilling, Lou D’Amico feels singled out.

“It seems quite strange to single out a single industry and apply a tax different than any other industry and equate that with fairness,” the Pennsylvania Independent Oil and Gas Association president said Thursday.

During a telephone news conference, leaders from industry support organizations assembled to voice their unequivocal unanimous decision that a new severance tax on natural gas drilling could deal irreparable harm to progress.

Many lawmakers in Harrisburg are arguing the industry is not paying its fair share.

And gubernatorial candidate Tom Wolf has maintained he will levy a 5 percent severance tax on the gas industry if elected. The tax would be on the gas as it is drawn — or severed — from the earth.

Pennsylvania is the only major drilling state that does not impose a severance tax on natural gas drillers; however, industry leaders, as well as the Corbett administration, long have held that an impact fee and a stiff corporate net income tax structure already in place has bolstered the economy.

Since 2012, the impact fee has padded the state’s coffers to the tune of about $630 million. Corporate income tax revenues from drilling operators total around $2 billion paid to the state since the boom began.

Taxes slow growth

A severance tax would not necessarily sound the death knell for shale production.

Existing wells likely would remain in operation, Marcellus Shale Coalition Executive Director Dave Spigelmyer said, but history shows when the government presses industry for more dough, investment declines.

Back in 2012, when Gov. Tom Corbett signed the state’s revised oil and gas law — Act 13, which imposed an impact fee on all new wells drilled — into effect, the drilling rig count dropped by 17 rigs in the same month, Spigelmyer said.

All economic factors likely played into the rig count shrinkage, he said, including a plummeting gas price, which make it less profitable for drillers to produce gas.

Over the next several months the rig count continued to fall by more than half, from about 120 to 58 active rigs fracking new wells in the Marcellus Shale play, Spigelmyer said.

More jobs possible

In Southwestern Pennsylvania, Shell Chemical LP is seeking to build an ethane cracker plant, a factory that produces raw plastic. Such a plant in Pennsylvania could bring a windfall of manufacturing jobs all over the Northeast as other factories locate near the plastic supply.

An uncertain supply of ethane, a byproduct of shale gas, potentially could slow or annihilate plans to build the plant.

“If we upset that competitive apple cart, and the drillers decide to park their capital elsewhere, that interrupts that supply of ethane,” Spigelmyer said.

Drillers would like to see the current system preserved, Stephanie Catarino Wissman, American Petroleum Institute-Pennsylvania’s executive director said, because an impact fee is the fairest way to assess an a fee from operators.

And the impact fee brings revenue that a severance tax would not, D’Amico said.

There are around 1,000 wells, about 16 percent of all wells drilled in the state, drilled and ready to go, but they are not in production mostly because pipelines have not been built to move the gas.

Drillers now pay a yearly impact fee on those wells. If there was a tax instead, operators would pay nothing until production begins.

Some GOP support

Aaron Kaufer, a Republican candidate taking his second stab at a seat in the state House to represent the 120th District, said Thursday that a reasonable severance tax could help patch together the state budget, now gouged with a $1 billion hole.

For the most part, Republican lawmakers oppose any new taxes on industry, but Kaufer said a tactfully-designed tax could keep Pennsylvania attractive to drillers.

His greatest contempt with the current set-up, Luzerne County is not considered an “affected community.” Because no drilling happens in this county, it receives fewer dollars from the impact fee. Luzerne County receives conservation-tagged money from the impact fee, but it is highly restricted.

“Our infrastructure is the one that’s being most affected because we’re the ones that connect the natural gas to the economy,” Kaufer said of Luzerne County.

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