Posts Tagged ‘center research director’

By Robert Swift (Harrisburg Bureau Chief)
Published: August 10, 2010

HARRISBURG – The natural gas industry is lobbying lawmakers to tax natural gas production at a lower rate during a well’s early years of production.

Proposals for a three-tiered well tax, requiring pooling together land parcels for drilling operations and making drilling a permitted use for local zoning are being advanced by the Marcellus Shale Coalition, an industry trade group. A copy of the coalition’s legislative agenda is circulating at the Capitol.

“Together, these policies will help ensure that Marcellus development remains competitive with other shale gas producing states and that critical capital investment will continue to flow into the region,” coalition president Kathryn Klaber said Monday.

Tax deadline Oct. 1

The coalition’s proposal surfaces with leaders of the House and Senate declaring their intent to pass a state severance tax by Oct. 1 and have it go into effect Jan. 1, 2011. The declaration is part of a state budget package enacted last month. Lawmakers return to session in mid-September with the Marcellus Shale and transportation funding issues competing for attention.

The newest details in the proposal focus on what production would be taxed at lower rates or exempt, an already contentious issue in Harrisburg.

Under the proposal, “high cost” Marcellus Shale wells that go to 5,000 feet or more below the surface to reach deep gas pockets would be taxed at 1.5 percent of market value of gas produced for the first five years, with a five percent tax rate kicking in after that.

So-called marginal Marcellus wells would be taxed at one percent of market value. These are described as wells not capable of producing more than 150,000 cubic feet of gas per day in a month. Wells not capable of producing more than 90,000 cubic feet of gas per day in a month would be exempt from taxes under the proposal.

Shallow gas wells would be exempt from taxes.

Market value would be defined as the amount generated through cash receipts less the cost of dehydrating, treating, compressing and delivering the gas.

As an example of high costs, the coalition cites a provision in state law that requires Marcellus producers to drill down into the Onondaga Layer which underlies the Marcellus Shale formation if the drilling takes place in a coal region. The added cost can amount to $200,000 per well, it states.

The Pennsylvania Budget and Policy Center issued a report recently criticizing tax breaks on new wells as depriving the state of tax revenue during a well’s greatest years of production.

“It would be a severance tax in name only,” said center executive director Sharon Ward.

The industry is seeking a two-sided exemption, with the reduced tax rate at the start and exemption for wells it considers low-producing, said Michael Wood, center research director. A 150,000-cubic-feet threshold is high, he said.

‘Use by right’

In addition, the coalition wants lawmakers to declare drilling a “use by right” in local zoning ordinances. That means drilling would be allowed, without the need for a major review by a local government, as long as it meets the standards specified in an ordinance. A local zoning permit would still be needed, but that would be issued relatively quickly.

This would provide for gas development in an orderly way while allowing municipalities to impose reasonable conditions on land used such as lot size and landscaping and safety features, the coalition said.

“We have problems with that,” said Elam Herr, an official with the Pennsylvania State Association of Township Supervisors. A township can’t exclude drilling under zoning laws, but local officials should be able to say where it takes place and keep it out of areas zoned for residential use, he said.

Other proposals call for providing incentives to convert state and local government and transit vehicles to natural gas fueling and giving priority to tax revenue distribution to host municipalities and counties.

Contact the writer: rswift@timesshamrock.com

View article here.

Copyright:  The Daily Review