Former natural gas company executive and Arkansas gubernatorial candidate Sheffield Nelson has said he may push to allow the state's voters to decide next year whether the severance tax on natural gas production should be raised to 7%, according to press reports.

The issue has become of increased importance as production in the Fayetteville Shale ramps up. The gas play runs through the northwestern part of the state.

Nelson, a lawyer and former politician, was the CEO of CenterPoint Energy predecessor company Arkansas Louisiana Gas Co. Three years ago he proposed raising the state's severance tax to 7% of market value before deferring to Gov. Mike Beebe, who succeeded in April 2008 in getting lawmakers to approve a more modest increase (see Daily GPI, April 3, 2008; March 12, 2008). That marked the first hike in the tax in more than 50 years, to 5% of the market value of gas extracted from three-tenths of a cent per 1 Mcf.

Nelson has remained in the spotlight with his proposal to raise the severance tax to fund transportation infrastructure improvements. His proposal to raise the severance tax to 7% would generate an estimated $150 million per year, all of it earmarked for highway construction.

While at one time the administration thought the severance tax would generate as much as $100 million per year, the reality has been much less due to low natural gas prices.

A Beebe spokesman told the online Arkansas News Bureau that an estimate for severance tax revenue in 2009 was based on a gas price of $8/MMBtu, much higher than the current $4 gas price environment.

"Of course [Beebe] is disappointed, but we know the Fayetteville Shale is not going anywhere and we know that the price is not going to stay at $4," spokesman Matt DeCample told the website.

In arguing for the higher tax Nelson has asserted that producers in Arkansas pay less than their counterparts in Texas, Louisiana and Oklahoma.