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Maryland Panel Recommends State-Level Severance Tax

An advisory panel formed by Maryland Gov. Martin O'Malley will recommend that the state's General Assembly impose a severance tax on natural gas production and a fee on gas leases, with the resulting revenue to be dedicated "to address impacts of gas exploration and production on the environment and natural resources" and to fund studies of issues related to the Marcellus Shale, according to a draft report by the state's Marcellus Shale Safe Drilling Commission.

"The severance tax revenue should be deposited into a Marcellus Shale Environmental Fund to be used to fund continuing monitoring and address negative impacts that are not attributable to a specific company or permittee," the panel said in the draft report.

The U.S. Geological Survey has estimated that there is as much as 2,383 Bcf of technically recoverable gas in Maryland's portion of the Marcellus Shale. Each 1% of severance tax on Marcellus Shale gas would bring the state revenues between $27.9 million and $93.7 million, according to the draft report, which does not include a recommended severance tax rate.

Rural Garrett and Allegany counties in Maryland's western Panhandle are the only counties in the state overlaying the Marcellus. Garrett County already levies a 5.5% tax on the wholesale market value of gas produced within its borders, and a 7.7% tax is levied on the wholesale market value of gas produced in Allegany County, according to the draft report.

The report calls on the General Assembly to "enact a law creating a rebuttable presumption that certain damages occurring close in space and time to exploration and production activities are caused by those activities, and an administrative process for requiring the permittee to remediate the damage, pay compensation, or both." A majority of the panel also called on the General Assembly to enact "a comprehensive Surface Owners Protection Act" and to change an existing law so that the amount of bond will be "based on a consideration of the likely costs of complying with permit provisions, properly closing the well and performing site reclamation."

The Marcellus Shale Safe Drilling Commission, Maryland Department of the Environment (MDE) and the Department of Natural Resources (DNR) held their final meeting to review the draft report in Flintstone, MD, on Monday. No major changes to the report are expected, "but we'll revise the draft somewhat based on yesterday's meeting," a commission spokesman told NGI's Shale Daily Tuesday.

O'Malley signed an executive order in June requiring the state to undertake a study of natural gas drilling in the Marcellus, with recommendations on a possible state-level severance tax and a report on potential impacts of drilling on groundwater among the items due over the next three years (see Shale Daily, June 7). The order required MDE and DNR, in consultation with the Marcellus Shale Safe Drilling Commission -- an advisory panel made up of a broad array of stakeholders (see Shale Daily, July 22) -- to undertake the study in three parts. The draft report, which was due to be finalized by the end of the year, is the first part of that study. Recommendations for best practices for all aspects of gas exploration and production in the Marcellus in Maryland are due by Aug. 1, 2012, and a final report, including findings and recommendations relating to the impact of Marcellus drilling, is due by Aug. 1, 2014.

The panel, MDE and DNR "have not yet made any determination of whether gas production can be accomplished without unacceptable risks, or how this might be done," according to the draft report.

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