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3% Tax on Marcellus Wells Proposed in New York

A 3% tax on horizontal wells drilled in the Marcellus and Utica shale plays would help close New York state's $7.4 billion budget gap, according to New York Gov. David Paterson, who last week proposed just such a tax.

The tax could provide the state with about $1 million in revenue beginning in fiscal year 2011-12, according to the budget proposal. New York could gather another $2 million by eliminating the ability of individual shareholders in partnerships and other flow-through entities to each claim up to the statutory cap on biofuel and qualified emerging technology company facilities, operations and training credits, according to Paterson's proposal.

The proposal includes $5.5 billion in spending reductions spread across every area of the budget and $1 billion in increased taxes and fees. Included in the proposal are spending reductions of at least $1 billion each for school aid, health care and state agencies, along with tax increases on cigarettes, soft drinks and other items that are projected to bring the state approximately $1 billion in additional revenue.

"Since the day I became governor, I have warned that New York is facing an inevitable fiscal reckoning," Paterson said.

Pennsylvania lawmakers are considering increasing their state's revenues by opening more Marcellus land to gas drilling (see NGI, Jan. 18). Gov. Ed Rendell has said the Marcellus Shale offers a "historic opportunity" to generate jobs and raise needed revenue for Pennsylvania, which struggled to balance its 2010 budget.

Producers and others in New York are pushing for adoption of new rules that would allow development of the Marcellus, while environmentalists are lobbying for stricter standards (see NGI, Jan. 4). New York state economic development and business interests -- led by the Independent Oil & Gas Association (IOGA) of New York -- last month reminded Paterson that his draft energy plan includes expansion of natural gas exploration. Based on 300 wells drilled, Marcellus Shale development in New York will generate more than $1.4 billion in annual economic impact, including more than $100 million in lease payments to landowners, $32 million in state tax revenue and tens of thousands of new jobs over time, according to IOGA.

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