A bill in a Texas House committee if passed would repeal a natural gas drilling tax break that benefits the vast majority of wells in the state's shale gas plays. The bill's sponsor says the incentive has outlived its usefulness, but an industry advocate claims its repeal would be a gas production- and job-killer.
Rep. Lon Burnam's bill (HB 2001) would repeal a tax break for high-cost gas wells that was created in 1989. The Fort Worth, TX, Democrat conceded that the measure has been successful, and that's why it's no longer needed.
"Clearly, the incentive has been successful, given that today nearly 60% of natural gas produced in Texas comes from shale formations," he said. "With the market for shale production now mature, it's time for this $2.3 billion taxpayer-funded subsidy to be reduced or eliminated."
After reaching a peak of 26 Bcf/d during the early 1970s, Texas natural gas production slumped to less than 16 Bcf/d by 2000, according to data from the Railroad Commission of Texas. However, since the first horizontal Barnett Shale well was drilled in 2002, production from the state has slowly crept back up, reaching just more than 20 Bcf/d in 2009.
To qualify for the tax break, producers must submit data on permeability and well depth to the Railroad Commission of Texas, which is in charge of certifying that criteria have been met.
"We are very fortunate to have these abundant natural gas resources in Texas, and we need to continue to ensure their safe and efficient development. But this incentive has outlived its usefulness. I have not seen any data to support industry claims that reducing or repealing this exemption will result in lost jobs," Burnam said.
However, job losses and production curtailments are exactly what would come of the tax break's repeal, Texas Independent Producers and Royalty Owners Association President Justin Furnace told NGI's Shale Daily.
The "high-cost gas incentive tax credit is creating jobs, almost 40,000 a year. The credit spurs that much economic growth, and in fact one of the interesting statistics is that it spurs $4 worth of economic growth for every dollar invested. So the state gets a four-to-one return on its money," Furnace said.
Since the measure was passed the percentage of Texas gas wells that qualify for the incentive has grown from 5.5% to 56%, Furnace said. "It is of vital importance and the reason that the Barnett Shale, Haynesville, Eagle Ford and Granite Wash formations have all been as prolific as they have been," he said. "More than half of all the counties in the state have a high-cost gas well in them, 136 out of the 254."
The bill was in the House Ways and Means Committee as of Thursday. Furnace said he did not have a feel for what its prospects would be. "It's a little early in the game in terms of understanding where all of the legislation will shape up," he said.