Pennsylvania's top oil and gas trade groups have sent a letter to Republican and Democratic leaders in both chambers of the state legislature, urging against the passage of a new severance tax on the industry.
The letter, sent to 11 lawmakers, including Senate Republican President Pro Tempore Joe Scarnati and Republican House Majority Leader Mike Turzai, as well as the leading appropriations committee members in both chambers, comes as lawmakers are said to once again be considering a new severance tax, albeit more strongly as the legislature looks to shore up a $1.5 billion budget deficit before June 30 (see Shale Daily, June 17).
The correspondence was signed by the directors of the Marcellus Shale Coalition, the Pennsylvania Independent Oil and Gas Association and the Associated Petroleum Industries of Pennsylvania. In it, the organizations write that the news media, some state policymakers and candidates for various public offices are naively stepping up their calls for a severance tax to "solve many of the Commonwealth's problems" (see Shale Daily, Jan. 28).
"A severance tax is not the panacea that many think it would be," the letter reads. "The economic reality is that there is a direct correlation between a severance tax, fees and regulatory environment and the investment decisions of our members."
Although a debate about imposing a severance tax on oil and natural gas production has persisted since about 2007, when development started to take hold in the Marcellus Shale, the letter comes after a Tuesday press conference at the capitol building. Republican Gov. Tom Corbett's Budget Secretary Charles Zogby reportedly said the administration was not ruling out a severance tax to help solve the state's budget deficit. The comments were a first for Corbett's administration, which has been staunchly opposed to a new tax on oil and gas production.
According to the Center for Energy Economics and Policy, 26 states levy a severance tax on natural gas. Supporters of such a tax in Pennsylvania say the state should be no different, citing growing spending cuts as a reason to no longer ignore the opportunities of rising natural gas production in the state, which exceeded 3.3 Tcf last year (see Shale Daily, Feb. 20).
In their letter, the trade organizations said that concept is misguided. They said "attempts have been made to compare severance taxes across states and simply conclude that the industry can afford it in Pennsylvania.
"For example, the liquid-rich formations in Ohio and West Virginia are more valuable, which means that the return on investment -- even if they have a severance tax -- is greater than the largely dry gas found in Pennsylvania."
No fewer than three severance tax proposals are under consideration in both chambers, each calling for a 4%, 4.9% and 5% tax rate on production. The trade groups said that the $630 million collected in impact fees -- a flat fee implemented in 2012 for all unconventional wells drilled in the state each year -- and the $2.1 billion in other taxes paid by the industry is "fair" and "reasonable" enough.