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Maryland House Passes 7.5% Severance Tax on Natural Gas

The Maryland House of Delegates passed a 7.5% state severance tax on natural gas production on Monday, which if adopted would become the highest severance tax rate for natural gas in the Marcellus Shale.

Legislators voted 82-51 to pass HB 907, which starting Jan. 1 would tax the wholesale market value of natural gas produced at the wellhead. The tax would not apply to wells that produce gas for domestic or agricultural purposes on the property from which the gas is produced, wells that produce less than 5 Mcf/d, or to gas withdrawn from storage wells.

The bill also directs the Maryland Department of the Environment (MDE) to set up a separate account for the severance tax revenue within the state's Oil and Gas Fund. The MDE would use the revenue to fund a statewide oil and gas regulatory program.

HB 907 now moves on to the state Senate. The bill was introduced by Dels. Maggie McIntosh (D-Baltimore) and Sheila Hixson (D-Montgomery) in February (see Shale Daily, Feb. 15).

On Friday the House Committee on Ways and Means successfully tacked on an amendment that cut the tax rate in half, from 15% to 7.5%. But House legislators voted 78-43 on Saturday to reject an amendment by Del. Wendell Beitzel (R-Garrett) that would have prevented counties or municipal governments from tacking on additional taxes to make the overall tax rate exceed 7.5%.

Last December Maryland's Marcellus Shale Advisory Commission (MSAC) recommended that the General Assembly levy a state severance tax and a fee on natural gas leases (see Shale Daily, Dec. 14, 2011).

Only two counties in Maryland -- Garrett and Allegany, which are in the western panhandle -- overlie the Marcellus Shale, which the U.S. Geological Survey (USGS) estimates could contain as much as 2.383 Tcf of technically recoverable natural gas.

According to an MSAC report, Allegany County currently levies a 7% severance tax, while Garrett County levies 5.5%. Based on the USGS estimates, and assuming a natural gas price of $3.93/Mcf, the commission calculated that every 1% of a statewide severance tax would bring between $27.9 million and $93.7 million into state coffers. However, the commission did not recommend a specific severance tax rate.

The MSAC -- appointed by Gov. Martin O'Malley and composed of a broad range of stakeholders (see Shale Daily, July 22, 2011) -- is scheduled to recommend best practices for gas exploration and production by Aug. 1, and to submit a final report on Marcellus drilling by Aug. 1, 2014.

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