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Ohio Governor Revives Severance Tax Proposal

In an effort to revive his plan to levy new severance taxes on hydraulic fracturing (fracking) and natural gas liquids (NGL), Ohio Gov. John Kasich has proposed giving 25% of the tax proceeds to 33 counties in the state's Appalachian region, home to Ohio's Utica Shale drilling.

Kasich's latest proposal calls for a 4.5% severance tax on crude oil and NGL -- up from his original call for a 4% tax (see Shale Daily, April 5) -- during the second and subsequent years of production from horizontal wells. A severance tax of 1.5% would be in effect for the first year.

The Republican governor also wants a 1% severance tax on natural gas produced from unconventional wells, but has proposed eliminating the severance tax on gas from conventional wells that produce less than 10 Mcf/d; conventional wells that produce more than 10 Mcf/d would be taxed at 1%, up to a cap of 3 cents/Mcf (see Shale Daily, Feb. 6).

Kasich spokesman Rob Nichols told NGI's Shale Daily on Monday that the new severance tax proposal emerged after discussions between the governor's policy makers and local officials in the Appalachian region.

"There's no bill, there's no amendment," Nichols said. "It's more conceptual in nature. We've believed from day one in the purity of the concept. We've said that it's not going away, and it's something we need to do here in Ohio."

Kasich's proposal was originally enshrined in the state's biennial budget bill, HB 59, but it was removed following opposition from fellow Republicans, who control both houses of the Ohio General Assembly. The $61.7 billion budget bill was discussed Thursday in the Senate, with several amendments being tabled.

Tom Stewart, executive vice president of the Ohio Oil and Gas Association, told NGI's Shale Daily that the organization remains opposed to the severance taxes.

"They are punitive and discriminatory against one industry, and will have the unintended consequences of narrowing the opportunity in the exploration window," Stewart said Monday. "When you narrow the exploration window, you're narrowing opportunity not just for large, out-of-state producers, but for in-state legacy producers in the state of Ohio."

Stewart claimed that more than 50% of the local governments that were approached by the Kasich administration have announced that they oppose the severance taxes. "I think local governments are more concerned about making sure that money is invested instead of being taxed," he said.

Kasich wants to generate revenue to offset a cut in personal income taxes. The hallmark of the governor's budget is to cut state income taxes by 7.5% in 2013, followed by additional cuts of 7.5% in FY 2014, and 5% in FY 2015, with severance taxes making up for any shortfall.

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