Shale Group: Rendell Tax Unfair, Pa. Laws Outdated
Washington PA Observer-Reporter
13 February 2010
HARRISBURG - The natural gas industry in one of the nation's hottest
exploration spots is bracing for a political tussle over whether and
how Pennsylvania will tax methane from the potentially lucrative
Marcellus Shale formation.
An industry trade association, the Marcellus Shale Coalition, said
Thursday it wants any discussion of a tax to involve the high cost to
drill a shale well and cumbersome state laws that make it costly to
operate.
A tax enacted without addressing issues that hamper exploration
companies could encourage some to move resources to shale formations in
other states, said coalition president Kathryn Klaber.
"What is important is to look at the broad issues, not just a tax, as
to how we make this climate best for growth," Klaber said. "There are a
lot of modernization policies that need to be put in place to develop
this massive natural resource."
On Tuesday, Gov. Ed Rendell issued his annual spending plan for the
state and renewed his call to enact a tax identical to West Virginia's:
5 percent on the value of sale, plus 4.7 cents per thousand cubic feet
produced.
Rendell projects the tax would produce $180 million in the fiscal year
beginning July 1 and increase to nearly $530 million after five years,
including 10 percent set aside for local governments. Rendell wants
money to shore up a state treasury that faces a projected $5.6 billion
gap in 2011 and 2012 resulting from spiraling public pension costs and
the expiration of federal stimulus budget aid.
Pennsylvania is the biggest natural gas producer that does not impose
some type of tax on it.
However, the coalition wants to steer talk of a tax to reflect those
imposed by shale states, such as Texas, Arkansas and Louisiana. In
those states, the tax is discounted initially to allow the exploration
companies to recoup a multimillion-dollar investment in each well.
For instance, Texas imposes a 7.5 percent tax but discounts it for 10
years or until the operator recovers 50 percent of the drilling and
completion costs. In Arkansas, the state imposes a 5 percent tax on
natural gas production but discounts it to 1.5 percent for at least
three years.
Last year, Rendell called for the same tax rate on gas. After months of
Republican-led opposition, he relented, saying he did not want to hurt
an industry in its infancy. In recent weeks, Rendell has said he
believes the industry can afford to pay a tax, and pointed to the heavy
influx of cash into Marcellus Shale exploration ventures.
For now, production from the Marcellus Shale is still in the early
stages. Fewer than half of the approximately 1,100 wells drilled in
Pennsylvania are connected to pipelines that can bring the gas to
customers.
Environmental groups and the Pennsylvania State Association of Township
Supervisors support a tax. The Senate's Republican majority has not
ruled out the eventual imposition of a tax, although Senate
Appropriations Committee Chairman Jake Corman, R-Centre, called it
"premature."
Meanwhile, the industry is looking to Rendell for regulatory and legal
concessions.
It has disagreements with the Rendell administration over its proposed
regulations on wastewater disposal and well construction.
And it is criticizing as outdated and costly a 1980s law that was
designed to protect coal seams by limiting the drilling of certain
wells within 1,000 feet of each other.
A spokesman for Rendell said the governor is willing to listen to ideas
related to ensuring any tax is fair, and he said there's room for
discussion about the state's laws and regulations.
"But he is not going to sacrifice environmental protection just to
expand natural gas drilling and he wants to be very careful," press
secretary Gary Tuma said.