Drillers split on Pa. severance tax
http://citizensvoice.com/news/drillers-split-on-pa-severance-tax-1.1044193
Drillers split on Pa. severance tax
By Robert Swift (Harrisburg Bureau Chief)
Published: October 6, 2010
HARRISBURG – Segments of the natural gas industry are taking different positions on acceptance of a severance tax for Pennsylvania.
The diverging views come as House Democratic and Senate Republican leaders face a narrow window to negotiate a compromise severance tax bill on natural gas production as the legislative session winds down.
The industry is united in their opposition to the House-approved bill to levy a significant severance tax rate at 39 cents per thousand cubic feet, or mcf, of natural gas at the wellhead. Senate GOP leaders want a severance tax that sets a lower tax rate during a well’s early – and most productive – years of production.
The Marcellus Shale Coalition, the Pennsylvania Independent Oil and Gas Association and firms like Range Resources-Appalachia criticized the bill approved last week by House lawmakers as setting a tax rate that would hurt development of the Marcellus Shale reserve in Pennsylvania.
But they part company when it comes to opposing any severance tax as a cost of doing business.
The coalition has urged lawmakers to link a severance tax with changes in state law to require the pooling together of land parcels for drilling operations and making drilling a permitted use for local zoning, thus allowing for quicker issuing of local zoning permits.
“A competitively structured tax in Pennsylvania, that allows for critical investment, coupled with smart regulatory and legislative modernizations, is key to ensuring that this historic opportunity is realized in ways that benefit each and every Pennsylvanian,” said coalition executive director Kathryn Klaber.
The Pennsylvania Independent Oil and Gas Association is opposed to any severance tax.
“PIOGA encourages the state Senate to reject, outright, any severance tax on natural gas extraction in Pennsylvania,” said association president Louis D’Amico. PIOGA represents both traditional shallow-well drillers and Marcellus-oriented companies.
A severance tax will eat up too much of the profit from production on natural gas wells and make it more difficult for companies to compete for capital to develop natural gas supplies, D’Amico said.
Somewhere in the middle is Range Resources, a firm with operations in Southwest Pennsylvania and Lycoming County.
“We are not against the severance tax,” spokesman Mike Mackin said.
Pennsylvania should structure a severance tax to allow drillers to recover capital investment spent on drilling a well so companies have money to reinvest, he said. Texas and Arkansas have structured severance taxes along those lines, he said.
“There is some place in the middle,” Mackin said. “All we are saying is, `Let’s be competitive.'”
Senate Republicans have proposed taxing a deep well at 1.5 percent of market value of gas produced for the first five years with a 5 percent tax rate kicking in after that.
Gov. Ed Rendell has said he won’t sign legislation with that specific phase-in, but added he is open to compromise.
rswift@timesshamrock.com