Severance gas tax punt

Other states’ taxes roll on

By FRITZ MAYER

HARRISBURG, PA — There will be no severance tax on gas for the time being, and perhaps not next year either. Governor Ed Rendell, at a press conference on August 31, said he is still in favor of a severance tax on gas coming out of the Marcellus Shale and other formations in the Keystone State, but he said he also wanted to comply with the wishes of the gas drilling companies. “They have asked us to go slow,” he said, “They’ve asked us to see how things develop.”

Earlier in the year, Rendell had proposed a five-percent gas severance tax to help the state with its crushing budget problem. But for now he has taken the position that any tax will be developed in consultation with the gas companies.

That leaves Pennsylvania as one of the few major gas producing states without a severance tax.

According to the Oil and Gas Mineral Service Company, which provides consulting and information to mineral owners, 24 states, ranging from Alabama to Wyoming, have gas severances taxes ranging to as much as 12 percent of the value of the gas. However, many states also offer reduced rates and other incentives to marginal wells or wells that are expensive to bring on line.

The Texas severance rate, for instance, is 7.5 percent. But according to the Texas Railroad Commission, which has jurisdiction over gas wells in the state, gas from wells drilled after 1996 are eligible for tax reductions, which are “based on drilling and completion costs.”

In Oklahoma, according to information on the Oklahoma Tax Commission web site, the severance tax is based on the going price of gas. If gas is selling for more than $2.10 per thousand cubic feet (MCF), the tax is seven percent. If the price is less than $2.10 but greater than $1.75, the tax is four percent. If the price drops below $1.75 per MCF, the tax is on percent. By comparison, gas is now selling for about $2.50 per MCF and was as high as $12.00 per CFM at the height of the market in July 2008. Additionally, there is a seven percent gas excise tax to which there are currently no exceptions.

In Louisiana, according to the state’s Technology Assessment Division, the severance rate is 33.1 cents per MCF with wells unable to produce 250,000 CFM per day eligible for a substantial reduction.

Critics of a gas severance tax say it will cause fewer wells to be drilled in Pennsylvania and will encourage drillers to go to other states. Others, however, have challenged that assessment. When the committee of the Pennsylvania House approved a severance tax bill in June, Jan Jarrett, president and CEO of PennFuture, pointed out that it was a carbon copy of a tax already in place in Virginia. She wrote at the time, “These multinational drilling companies need to step up to the plate and stop their attempts to block this legislation. It’s time, quite simply, for these companies to do their fair share.”