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Arkansas Adopts 5% Natural Gas Severance Tax

April 7, 2008
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Gov. Mike Beebe has signed legislation, passed by the Arkansas General Assembly during a special legislative session last week, that will increase the state's severance tax rate on natural gas beginning Jan. 1, 2009.

Beebe has said the revised severance tax could raise an estimated $57 million next year and reach the $100 million mark by 2013 without increasing natural gas rates for residential customers.

Beebe said 95% of the severance tax revenue would be dedicated to Arkansas roads with the remaining 5% going to the state's general revenue fund.

At a bill signing ceremony in Little Rock Wednesday, Beebe had nothing but good words for members of the General Assembly, saying they had provided much-needed funding for the state's highway system, which he said is essential for economic development.

Terms of the act include:

The legislation was passed in the state Senate by a 32-3 vote and in the House by an 82-17 vote. The act needed the votes of at least three-fourths of the members of each house in order to be passed.

Arkansas raised just $552,861 in fiscal 2006 through its current severance tax, which has stood at three-tenths of a cent/Mcf for more than 50 years and is one of the lowest in the country. Producers in the state also pay ad valorem taxes at 50 cents/Mcf and conservation taxes at nine-tenths of a cent/Mcf. Most of the natural gas produced in Arkansas is shipped out of state.

Last month Beebe called the General Assembly into a special legislative session after representatives of the natural gas industry had agreed to his proposal to increase the severance tax (see NGI, March 31; March 17).

The promise of increasing production from the Fayetteville Shale in northern Arkansas has prompted the state government and others to look for a method to gather more dollars for Arkansas residents. According to the latest information from the Arkansas Oil & Gas Commission, 89.1 Tcf was produced in the Fayetteville play last year. Southwestern Energy, the largest producer now operating in the play, recently said it would produce about 148-152 Bcfe this year, with 90-95 Bcfe expected to come from the Fayetteville play (see NGI, March 3).

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