A severance tax on natural gas drilling in Pennsylvania, which is scheduled to be hammered out by state legislators later this year and implemented by Jan. 1, must provide a fair share of revenue to local governments and communities where drilling takes place, Gov. Ed Rendell said Tuesday.

"The rich natural gas deposits in the Marcellus Shale represent a tremendous opportunity in the form of new jobs and economic stimulus to mostly rural communities across the commonwealth," Rendell said.

In comments delivered in Towanda, PA, in Bradford County -- the state's most active county for Marcellus Shale gas drilling -- Rendell said Pennsylvania has a responsibility to ensure that the economic benefits of its shale output are balanced against the need to protect the environment and residents of communities where drilling occurs.

"Along with the economic boom, the burgeoning natural gas industry is also creating a lot of new responsibilities and concerns that carry enormous costs for local communities. The local and county governments where this drilling is taking place do not have the financial resources they need to address these concerns. That's why it is absolutely essential that the severance tax we enact pay these host municipalities their fair share. The drilling activity is going on now, so we need to start working on this tax now so there's no delay in getting them the financial resources they need."

Pennsylvania's Department of Environmental Protection has issued almost 2,900 drilling permits this year, 1,172 of them for Marcellus development, compared with a total of 1,984 permits for Marcellus drilling in all of 2009. A total of 1,164 gas wells have been drilled in the state this year, 564 of them aimed at Marcellus Shale gas and 143 of them drilled in Bradford County, according to the governor's office.

Rendell was in Towanda to sign the $28 billion 2010-11 budget package approved by the state's legislature last week (see Daily GPI, July 2). Pennsylvania House and Senate members agreed during budget negotiations to enact a severance tax on natural gas drilling by Oct. 1 to take effect by Jan. 1. No specific severance tax rate was adopted by the legislators. Rendell has said he would like to see a tax rate similar to the one implemented by West Virginia in 1987, which levies a 5% tax on the gross value of gas extracted plus 4.7 cents/Mcf.

Last year the Pennsylvania House debated legislation that would have imposed a "privilege tax" on all of the state's natural gas producers, but the final budget did not include the tax (see Daily GPI, Oct. 12, 2009; June 24, 2009).

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