Proving the common saying that region trumps party in Pennsylvania politics, a pair of Republican state representatives are proposing a severance tax on natural gas production in the Marcellus Shale.
State Reps. Thomas Murt and Gene DiGirolamo, both of southeastern Pennsylvania, plan to introduce a 4.9% per Mcf “drilling tax” on the gross wellhead value of “deep gas reserves,” such as the Marcellus.
Based on the production assumptions used for impact fee legislation currently working through the state Senate, the representatives estimate their tax would bring in $136.4 million through the second half of the current fiscal year and $363.1 million in the coming fiscal year (see Shale Daily, June 15; April 29). The revenue collected from the tax would go roughly in thirds to statewide environmental programs, local government programs and investments in education, workforce development and energy technology.
The bill now joins at least 15 other severance tax and impact fee proposals that the Pennsylvania General Assembly must cull into a single bill that satisfies the public demand for a tax and Gov. Tom Corbett’s refusal to sign any measure that brings revenue into the state coffers (see Shale Daily, Sept. 16; Sept 13).
The state would stand to collect significant revenues if a severance tax or impact fee were added, especially as Pennsylvania’s production has skyrocketed over the last decade. From 2000 through 2010, natural gas production increased by more than 300% from 0.39 Bcf/d to 1.67 Bcf/d, according to data from the Pennsylvania Department of Environmental Protection.
Corbett is expected to introduce an impact fee proposal soon, and state House Republicans have generally accepted that an impact fee is the model most likely to succeed, but some lawmakers — particularly in the southeastern corner of the state, a region that does not overlie the Marcellus — continue to promote a severance tax. They argue that an impact fee will primarily benefit counties with drilling activities, and not statewide programs.
Murt and DiGirolamo said they believe a severance tax is “the best policy,” but they added that it would be “appropriate” to translate their proposal into an impact fee “should that be the route take by the House.” While acknowledging the environmental and economic benefits of shale, the representatives said “it is time, long past time, that Pennsylvania assess a reasonable tax or fee on deep gas drilling that protects host communities, invests in our environment and economy, and makes sure that all of our citizens benefit.” They said their tax rate would be lower than the one in West Virginia, “where the industry is thriving.”
Corbett believes state-to-state comparisons aren’t useful because Pennsylvania levies a higher corporate income tax than most other states, but critics say the industry sidesteps that tax (see Shale Daily, May 5).
In the absence of economic modeling, the impact of a tax or a fee on the natural gas industry in Pennsylvania remains a philosophical debate. At the recent Shale Gas Insight 2011 conference, Talisman Energy Inc. executive Paul Smith said a tax could jeopardize the “marginal” production coming from the dry gas corridor of northeastern Pennsylvania, but Jonathan Wolff, senior managing director at ISI Group Inc., said Marcellus gas is currently more economic than some oil plays (see Shale Daily, Sept. 14; Sept. 9).
Meanwhile, exploration and production companies have stockpiled acreage in the Marcellus for future development. According to company reports and NGI‘s Shale Daily calculations, Chesapeake Energy, with 1.75 million net acres, is the largest acreage holder in the Marcellus Shale. Rounding out the top five are Range Resources (1.048 million acres), Consol Energy (750,000 acres), Seneca Resources (745,000 acres) and Chevron (714,000 acres).
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