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Industry Report Shows Utica Producers Paying Millions in Ohio Property Taxes

Shale drillers have driven a significant increase in the real estate property taxes that counties in eastern and southeastern Ohio have collected since the first Utica Shale wells came online seven years ago, according to a report prepared by the Ohio Oil and Gas Association (OOGA) and industry-backed Energy In Depth.

The report, which analyzed property tax data from Belmont, Carroll, Guernsey, Harrison, Monroe and Noble Counties, found that between 2010 and 2015 horizontal wells accounted for 95% of the $43 million paid in ad valorem taxes.Those counties on average saw a 22% increase in the receipts of all real estate property taxes during the period. Ohio's ad valorem tax is similar to a property tax and requires assessment. Counties collect the tax and use it for their general funds, schools or other purposes.

The oil and gas industry in Ohio enjoys one of the nation's lowest severance tax rates, paying 3 cents/Mcf for natural gas and 20 cents/bbl for oil. But along with the ad valorem tax, it comes in addition to the road use maintenance agreements, sales tax and commercial activity tax that the industry either pays or contributes to, the report's authors noted.

Of the ad valorem taxes collected in the state, the report found that 100% goes to local governments and roughly 60-70% goes to schools. The report offers one of the first comprehensive examinations of the property taxes paid by oil and gas producers in the state, which have been difficult to track. The value of reserves assessed for collection is based on production volumes reported to the Ohio Department of Natural Resources (ODNR).

The report also comes at a time when Republican Gov. John Kasich has again proposed increasing the state's severance tax on unconventional oil and gas production to 6.5% and to 4.5% for natural gas liquids. While that proposal is likely to fail in the face of strong opposition from Kasich's party as it has in the past, OOGA and Energy In Depth said "the report is designed to serve as a resource to help the public better understand the significance" of growing property tax revenues.

Combined unconventional and conventional production in the state reached more than 1 Tcf in 2015, the latest full-year period for which data is available. Combined oil production reached about 25.7 million bbl that year. According to the report, oil production increased by 496% from 2013-2015, while natural gas production increased 852%. Based on those volumes and the payments received during that time, the report estimates producers would likely pay $200-250 million in ad valorem taxes between 2016 and 2026.

The report also notes that while other counties, such as Columbiana, Jefferson and Mahoning, have reported Utica production, the six counties analyzed have accounted for most of the state's volumes. To date, 2,373 horizontal permits have been issued for the Utica Shale, where 1,897 wells have been drilled, according to ODNR.

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