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Top Ohio Republicans Take Aim at Severance Tax Proposal

Two prominent Ohio Republicans -- state House Speaker William Batchelder (R-Media) and Treasurer Josh Mandel -- told supporters of the oil and natural gas industry that they oppose Gov. John Kasich's proposal to levy new severance taxes on hydraulic fracturing (fracking) and natural gas liquids (NGL).

According to reports, Batchelder told attendees of the Ohio Oil and Gas Association's (OOGA) winter meeting in Columbus on Thursday that the tax hikes contained in the latest state budget bill, also known as HB 59, would not receive his support.

"What people are talking about doing is nonsense," Batchelder said. "Let me just say to you that as long as I'm there, we're not going to be doing the kinds of things to damage an industry that are among the proposals that have been made."

Mandel also took aim at Kasich's plan, which would generate revenue to offset a cut in personal income taxes. The hallmark of the governor's budget is to cut state income taxes by 7.5% in 2013, followed by additional cuts of 7.5% in FY 2014, and 5% in FY 2015, with severance taxes making up for any shortfall.

"This is going to be a fight, a passionate fight," Mandel said. "They see it as an opportunity to increase taxes, ramp up regulations and redistribute oil and gas wealth to others...Now is not the time for government to kill the golden goose and scare away the capital that could lead to a long-term recovery in our state."

Batchelder added, "I don't know that that's the only thing that can lead to an income tax cut."

Kasich has proposed a 1% severance tax on natural gas produced from unconventional wells but has proposed eliminating the severance tax on gas from conventional wells that produce less than 10 Mcf/d; conventional wells that produce more than 10 Mcf/d would be taxed at 1%, up to a cap of 3 cents/Mcf (see Shale Daily, Feb. 6).

Meanwhile, the Republican governor has proposed enacting a 1.5% severance tax on crude oil and natural gas liquids (NGL) from horizontal wells for the first year and 4% in subsequent years. The state's 20 cents/bbl severance tax on oil from conventional wells would remain unchanged; Ohio does not currently levy a severance tax on NGLs.

"There is a fundamental misunderstanding of how this industry works," OOGA Executive Vice President Tom Stewart said. "We have this obsession with taxing this industry. That what's going on in Columbus; it's all about trying to export -- in their view -- Ohio's tax burden on the backs of people they call 'foreigners,' otherwise outside investment at the level of billions upon billions coming into the state of Ohio.

"They're missing the point. The point in the state of Ohio is the expansion of the natural tax base through economic activity. We're going to build a monstrous asset called proven reserves here. We're not diminishing the state of Ohio; we're building assets in this state."

Besides severance taxes, HB 59 would place several new requirements on operators, including quarterly production reports, a $25,000 per well impact fee, and new testing and disposal requirements for drilling waste (see Shale Daily, Feb. 26).

According to reports, Kasich spokesman Rob Nichols issued a statement responding to criticism of the governor's proposal.

"The governor believes strongly in the need to cut taxes for Ohioans, for small businesses and for small drillers, and our plan allows us to do all these things," Nichols said. He reportedly added that opposition to HB 59 was being fueled by lobbyists from the energy industry. "Big Oil is a powerful lobby with very deep pockets, and it's not surprising that some [state officials] are intimidated by them."

HB 59 was introduced to the House on Feb. 12 by Rep. Ron Amstutz (R-Wooster). It is currently before the House Finance and Appropriations Committee, which Amstutz chairs.

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