HARRISBURG – Negotiations over a state severance tax on natural gas showed some signs of life Wednesday as Gov. Ed Rendell offered encouragement about a private round of leadership talks.

The governor said discussions will continue in coming days to find a compromise tax on natural gas produced by deep wells in the Marcellus Shale formation. He said the tax rate is still a sub-ject of debate, while informal agreement has been reached on specific language to exempt traditional shallow gas wells from the tax.

The governor’s tone was different than on Tuesday when he and legislative leaders of both chambers voiced recriminations over the failure to enact a severance tax by the Oct. 1 target date. Both House Democratic and Senate Republican leaders declared their intent to pass a tax under a provision of the state fiscal code enacted in July.

“Color me optimistic today,” said Mr. Rendell.

It appears that any passage of a severance tax, even if an agreement is struck, is still days or even weeks off.

Senate GOP leaders are cooler in their view of progress. But they have agreed to add session days in advance of the Nov. 2 election if they get a compromise bill from the House. House Democratic leaders have already indicated they will return to vote on a compromise bill.

Mr. Rendell said his compromise offer to phase in a severance tax rate starting at 3 percent and reaching 5 percent by the third year put the talks in gear. But Senate Republicans see things differently.

“It would still be one of the highest (severance) taxes in the nation,” said Senate President Pro Tempore Joseph Scarnati, R-25, Jefferson County. “Unless the governor is willing to negotiate that rate down, I don’t see any progress in getting things done.”

The GOP caucus wants to phase in the tax at 1.5 percent during the first five years’s of a well’s production before a 5 percent rate kicks in.

Mr. Rendell’s proposal would exempt up to 10 percent of some production and distribution costs from the tax, while Senate Republicans want to exempt 100 percent of production costs.

The governor said agreement has been reached on exempting so-called stripper wells producing less than 90,000 cubic feet of gas per day from the tax and progress made on exempting shallow well drillers from a self-reporting requirement.

“A major concern that has emerged in this debate is that small, independent producers that do not drill in the Marcellus Shale would be subject to the proposed tax or be forced to spend millions to prove they qualify for an exemption,” said Louis D’Amico, president of the Pennsylvania Independent Oil and Gas Association.

Contact the writer: rswift@timesshamrock.com

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Copyright:  The Scranton Times