Shale Daily / NGI All News Access

Former Arkla CEO: Arkansas Severance Tax Still Too Low

Arkansas should increase its severance tax rate on natural gas production, including production from the Fayetteville Shale, to help pay for road repairs in gas producing areas, said Sheffield Nelson, former CEO of Arkla Inc., the state's largest gas company. Nelson was among those who pushed for the state's last severance tax increase three years ago.

In a guest column published in the Arkansas Democrat-Gazette newspaper Sunday, Nelson, a former Republican candidate for governor, called for a 7% of fair market value severance tax rate, "or another fair, significant increase" to be considered by the Arkansas General Assembly when it convenes in January.

"It is very clear that damage to the roads of the state, particularly in areas where the majority of the drilling takes place, is significant," Nelson wrote. "It was recently determined that the cost to repair the roads in the 10 counties that have the most drilling would be $219 million, and that amount increases every day the heavy loads used in the drilling for natural gas travel our roads."

Because most of the gas produced in the Fayetteville Shale will be shipped out of the state, "either the gas producers or the consumers of the gas should pay the higher severance tax," Nelson wrote. "They currently pay it for the natural gas they receive from our surrounding states of Louisiana, Texas and Oklahoma, and there is no reasonable basis for them paying a lesser amount to Arkansas."

In 2008 the state adopted legislation that increased to 5% the base rate of gas-sale proceeds received by producers effective Jan. 1, 2009 (see Daily GPI, April 3, 2008). Arkansas' previous severance tax rate had stood at three-tenths of a cent/Mcf for more than 50 years. At the time, Sheffield also called on the General Assembly to increase the severance tax to 7% (see Daily GPI, Nov. 6, 2007).

In Pennsylvania this year lawmakers reached an impasse over a proposed severance tax on natural gas operations. In September the state's House overrode more moderate Republican proposals and passed a tax bill that included a 39 cents/Mcf (about 10%) severance tax rate (see Daily GPI, Sept. 30). Gov. Ed Rendell had previously proposed a 5% extraction tax, plus 4.7 cents/Mcf. But Republicans in the Pennsylvania Senate balked at both proposals, saying the tax rates they called for were too high.

Eventually Rendell declared the severance tax dead for the 2010 legislative session (see Shale Daily, Oct. 22). Newly elected Pennsylvania Gov. Tom Corbett has promised to impose no new taxes.

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