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Arkansas Legislators to Consider Severance Tax Increase

Gov. Mike Beebe has called the Arkansas General Assembly into a special legislative session to consider his proposal to increase the state's severance tax to help pay for an ongoing roads program. The proposed increase could raise an estimated $57 million next year and reach the $100 million mark by 2013 without increasing natural gas rates for residential customers, Beebe said.

Legislators are scheduled to consider only the severance tax increase and two other items during the special session, which is set to begin Monday morning.

Arkansas raised just $552,861 in fiscal 2006 through its current severance tax, which has stood at three-tenths of a cent/Mcf for more than 50 years and is one of the lowest in the country. Producers in the state also pay ad valorem taxes at 50 cents/Mcf and conservation taxes at nine-tenths of a cent/Mcf. Most of the natural gas produced in Arkansas is shipped out of state.

Earlier this month, Beebe said representatives of the natural gas industry had agreed to the increase. He said he would not call a special session unless enough votes existed to pass the proposal (see NGI, March 17).

Terms of the agreement include:

Beebe said 95% of the severance tax revenue would be dedicated to Arkansas roads, utilizing the current formula of 70% to state highways, 15% to counties and 15% to cities. The remaining 5% would go to the state's general revenue fund. The proposal could go into effect Jan. 1.

Last year Beebe said the General Assembly should consider legislation that would raise the state's severance tax, with the revenue going toward road improvements in areas damaged by gas industry-related trucks and other equipment (see NGI, Nov. 12, 2007).

The promise of increasing production from the Fayetteville Shale in northern Arkansas has prompted the state government and others to look for a method to gather more dollars for Arkansas residents. According to the latest information from the Arkansas Oil & Gas Commission, 89.1 Tcf was produced in the Fayetteville play last year. Recently Southwestern Energy, the largest producer now operating in the play, said it would produce about 148-152 Bcfe this year, with 90-95 Bcfe expected to come from the Fayetteville play (see NGI, March 3).

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