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Pennsylvania Governor Opposes Forced Pooling

Countering claims that he moves in lockstep with the industry on Marcellus Shale issues, Pennsylvania Gov. Tom Corbett spoke out against forced pooling in a speech last Tuesday before a Pittsburgh audience.

"I do not believe in private eminent domain. And forced pooling would be exactly that: private eminent domain," Corbett said at the Appalachian Basin Oil & Gas Seminar, hosted by K&L Gates.

Forced pooling allows companies to drill beneath the property of a landowner without having a gas lease in order to promote conservation of resources. Although it provides for compensation and reduces surface disturbance, the concept is controversial because of its similarity to eminent domain.

Corbett doesn't believe private companies should have that ability, telling reporters after his speech that "the only entity that should be involved in eminent domain is the sovereign, which is the government."

Public utilities in Pennsylvania currently have the right of eminent domain. That created a debate last year when Laser Northeast Gathering Co, a pipeline operator targeting Marcellus customers in northeast Pennsylvania, unsuccessfully requested utility status.

The Marcellus Shale Coalition is in favor of the idea, calling it "fair pooling," but an October 2010 opinion poll found little support for the practice among the public, and it has divided lawmakers (see NGI, July 26, 2010).

Corbett connected his opposition to forced pooling to his opposition of a severance tax.

While it is known that the Marcellus industry is receptive to being taxed, even putting forth a proposal, Corbett said less has been written about the fact that industry support for a tax is dependent upon certain concessions, including forced pooling (see NGI, Oct. 25, 2010).

Corbett reiterated his opposition to a severance tax, saying the industry is a major job creator that already pays millions in taxes and shouldn't be forced to fill a $4.2 billion hole in the state budget.

That stance is increasingly isolating Corbett. State lawmakers on both sides of the aisle have proposed severance tax bills and the public is firmly in favor of the idea (see NGI, April 25). But Corbett said the Marcellus tax base is "much broader" than most people realize.

"One of the difficult jobs we have here is really to determine how much Marcellus pays in taxes," Corbett said, noting that there isn't a tax box that reads "I'm a Marcellus Shale company."

Citing a 2010 study by researchers at Penn State University and the University of Wyoming, Corbett said Marcellus producers paid $389 million in state and local taxes in Pennsylvania in 2009, a figure that Corbett noted does not include the indirect and induced benefits of a stronger economy.

"So the critics ask me: Why not a severance tax? I guess I respond: Why? They're paying their taxes. They're creating wealth. They're creating income," Corbett said.

The Pennsylvania Budget and Policy Center (BPC) issued a report last Tuesday that challenged Corbett's assertions, saying the oil and gas industry paid $38.8 million in state business taxes in 2008.

Of the 783 companies to file corporate net income tax returns in 2008, the report found that 85% "paid nothing in taxes" in Pennsylvania. According to the report, nine of the top 10 permit holders in the Marcellus Shale are limited liability companies or limited partnerships, allowing them "to avoid the corporate net income tax altogether and pay the much lower personal income tax on company profits."

Although Corbett said he would not sign a severance tax bill, he still supports an "impact fee."

But he said he is reluctant to impose one until the state knows all the impacts of development on the environment, infrastructure, school and social services. He said he tasked his Marcellus Shale Advisory Commission with finding those answers. "It's unfortunate that we've been at this for four years and no one sat down and did this," he said. "This could have been done four years ago."

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