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West Virginia Oil/Gas Regulation Won’t Decline With Falling Severance Tax Revenues

West Virginia's severance tax collections are projected to fall $192 million short of initial estimates for this fiscal year (FY) and grow at nowhere near the pace they did last year, said Gov. Earl Ray Tomblin's spokesman a day after state-wide budget cuts were announced.

Low oil and gas prices, and coal's continuing spiral downward, have created a significant dent in state tax revenues, the governor’s administration said earlier this week. As a result, Tomblin announced a 4% across-the-board spending cut for most agencies (see Shale DailyOct. 6). While coal production has dropped 15% from July-August compared with the same time last year, natural gas production was up 30%. That hasn't been enough, however, to offset a steep drop in oil and low gas prices.

When asked how the budget cuts, which amount to about $100 million, would affect the West Virginia Department of Environmental Protection's (WVDEP) Office of Oil and Gas, which regulates the industry, Tomblin spokesman Christopher Stadelman said the agency would have to make its own decisions.

"Each agency will determine the appropriate way to achieve the 4% cut, so it will be up to the WVDEP to decide where to reduce expenditures," he said. "Most agencies have not formulated plans to do that yet."

WVDEP spokeswoman Kelley Gillenwater said the agency is still evaluating how to reduce its expenses. But she said the budget reduction would specifically affect the agency's general fund allocations.

"Our Office of Oil and Gas is funded primarily through others sources," she said. "Therefore, we are not anticipating any significant impact to that regulatory program due to the reduction."

In 2014, West Virginia's oil and gas severance tax collections more than doubled from 2013 to $188 million from $79.2 million (see Shale DailyApril 22). But in FY2016, which began in July, the state reported a 36% year/year decline in collections through the end of August. Stadelman said the state Department of Revenue now expects total severance tax collections to reach $280 million by the end of this fiscal year.

Over the last three years, Tomblin has ordered state agencies to cut spending by 7.5% to help balance the budget, which has made the latest round of cuts particularly acute for some. The state also said Tuesday that declining commodity prices have cut into both sales and income tax collections early in the fiscal year. Personal income tax collections alone were down by $28.1 million in September year/year, as layoffs continue to be announced throughout Appalachia's coal, oil and natural gas industries (see Shale DailySept. 23).

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