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XTO Chief Critiques Appalachian States' Taxes

XTO Energy Inc. President Randy Cleveland told a Pittsburgh audience Wednesday that if the Appalachian Basin expects to remain competitive in a rapidly evolving energy market, state policies and regulations will need to adapt.

He chided "outdated" regulations in West Virginia and advocated for a fair severance tax, while Ohio lawmakers also consider an increase to their tax (see Shale Daily, May 15). Cleveland went further to say Pennsylvania's corporate tax structure needs to be overhauled and he said the ExxonMobil Corp. subsidiary supports keeping Pennsylvania’s impact fee, rather than replace or pair it with a higher severance tax.

"Here in Pennsylvania, which struggles with an uncompetitive business tax structure overhaul, we support a system based on predictability, fairness and simplicity,” Cleveland said. “We also support a tax structure that provides adequate resources to the communities in which we operate," he said of the impact fee, which collects a flat rate from all unconventional wells drilled in the state each year to allocate to host communities. 

Cleveland's comments come at a time when incumbent Republican Gov. Tom Corbett is trailing in statewide polls against his Democratic challenger for governor, Tom Wolf, who has repeatedly pushed for a 5% severance tax on oil and gas production (see Shale Daily, May 21). Some in the industry have also been dissatisfied with the state's corporate tax rate.Although Pennsylvania is working to phase out a capital stock and franchise tax by 2016, the corporate rate is nearly 10%, which ranks it among the highest in the country (see Shale Daily, Jan. 28).

Cleveland said XTO, which was acquired by ExxonMobil four years ago and now has about 11 million acres under lease across the country, remains bullish about the Appalachian Basin's long-term potential (see Daily GPI, March 17, 2010). It has more than 500,000 acres under lease in Pennsylvania, where its production in the Marcellus Shale is currently 200 MMcf/d, and another 80,000 acres in Ohio's Utica Shale.

Although the ExxonMobil unit has no gas drilling rigs working anywhere in North America now, Cleveland said XTO has been encouraged by its initial results in Ohio thus far, where he said the company plans to accelerate drilling in Belmont County in the near future.

"In Ohio, where Utica production is just beginning to come into its own, we advocate a fair approach to taxation as well as policies based on facts and sound science, balancing environmental protection with economic development," he said. "This means a collaborative, transparent approach to the regulations that impact Utica Shale development."

ExxonMobil issues a global energy outlook every year. Citing the most recent one, Cleveland said global demand for electricity will double over the next two decades with coal and natural gas expected to account for 80% of those needs (see Daily GPI, Dec. 12, 2013). "But the largest net increase during that output period will be seen in natural gas," he added. "Global natural gas demand is projected to rise by nearly 65% and the reasons are well known: it's abundant, affordable and versatile."

Cleveland said there will need to be more state regulators with knowledge and expertise about oil and gas development in order to keep pace with rising demand and the rising volumes that are expected in Ohio, West Virginia and Pennsylvania.

If the policies are not right, or if companies fail to responsibly develop the basin's resources and if the public doesn't understand the industry’s benefits for the economy, the United States could miss out on a major opportunity to be a global energy leader.

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