News Column

Key Ohio Repubs Oppose Tax Proposal on Drilling

March 11, 2013

Bob Downing, The Akron Beacon Journal

Two key Ohio Republicans have come out against Gov. John Kasich's proposed higher severance tax on gas-oil drilling.

State Treasurer Josh Mandel and House Speaker William G. Batchelder of Medina both spoke out against Kasich's tax plan during the three-day winter meeting of the powerful Ohio Oil and Gas Association.

Three other Republican legislators also pledged their support to the association at the meeting, which largely served as a celebration of the industry's growing success in tapping resources from the state's Utica shale formation.

The Utica shale, thousands of feet underground, mainly in eastern Ohio, is producing staggering quantities of oil, natural gas and related natural gas liquids, such as ethane, butane and propane.

Kasich wants drillers to pay a severance tax as high as 4 percent on their production. That revenue would offset income tax cuts for Ohioans.

"This is going to be a fight -- a passionate fight," Mandel said of the severance tax issue. "Now is not the time for government to kill the golden goose and scare away the capital that could lead to a long-term recovery in our state."

He labeled Kasich's tax proposal as little more than a plan to redistribute wealth.

Ohio should lease as much state property as possible, not tax the industry, Mandel said.

Batchelder called the governor's tax proposal, now part of the 4,600-page state budget bill, "nonsense." He said he had no intention of supporting a severance tax and suggested it will fail.

Increasing the severance tax "is absolutely the wrong direction to go," state Rep. Andy Thompson, R-Marietta, told the association.

Kasich spokesman Rob Nichols told the Associated Press that "big oil is a powerful lobby with very deep pockets, and it's not surprising that some are intimidated by them."

The governor's plan calls for taxing oil extracted by horizontal drilling at 1.5 percent of market value for the first year, a rate that may be extended another year if initial drilling costs aren't recovered. After that, the rate would be 4 percent annually.

The same rate structure would be applied to natural-gas liquids. The levy on natural gas would be held at 1 percent.

Kasich's proposal is expected to generate $920 million through fiscal year 2017.

The state's current severance tax is 20 cents per barrel of oil and 3 cents per 1,000 cubic feet of natural gas with no tax on natural-gas liquids. The state collected $10.6 million in severance tax in fiscal 2010.

Thomas Stewart, executive vice president of the Ohio Oil and Gas Association, came out swinging against Kasich's tax plan.

It is unfair to target only the drilling industry to fund the income tax refund, and imposing the tax now would hurt the drilling industry that is poised to boost Ohio's economy, he said.

Stewart called it "a policy based on envy."

He said the state made calculation errors and the tax will not produce the income Kasich has stated. He called the administration's data "very flimsy" and "garbage."

Individual landowners, not drilling companies, would pay the tax, Stewart said.

Kasich, he said, has "an obsession" with taxing the gas-oil industry.

It is likely that Ohio, with neighboring Pennsylvania and West Virginia, soon will produce nearly 15 percent of the natural gas consumed in the United States, a panel of industry experts said during the annual meeting.

The whole country consumes 70.3 billion cubic feet per day, and the three-state region soon will be producing 10 billion cubic feet per day, or 14.3 percent of the national total from the Utica and Marcellus shales, said Kenneth Mariani, president and CEO of EnerVest Operating LLC. one of the big players in Ohio's still-developing Utica shale.

That is going to happen in the next few years, he said. That kind of impact is staggering and difficult to grasp, Mariani said, and the impacts will be sweeping.

Oklahoma-based Gulfport Energy Corp. is pleased with the results from its 14 initial Ohio wells drilled in 2012 and intends to drill 50 new wells this year, CEO James Palm said.

Most of those wells are in Belmont, Harrison and Guernsey counties.

"We like what we've found there," he said during a panel discussion.

Chesapeake Energy Corp. -- with 200 wells being drilled in Carroll, Columbiana, Harrison and Jefferson counties -- is "optimistic" about the Utica shale, said Scott Rotruck, vice president of corporate development.

The full impact of the Utica shale will be seen as additional pipelines and processing facilities come online in 2013, said Rick Moncrief, president and COO of Caiman Energy LLC.

The Utica boom has contributed to the association's membership climbing from 1,400 to 3,300 in the last two years, said President Joel Rudicil.

Source: (c)2013 Akron Beacon Journal (Akron, Ohio) Distributed by MCT Information Services

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