Point/Counterpoint

According to the Industry:

A severance tax would reduce drilling activity by more than 30 percent.

Source:

Considine, Timothy, Robert Watson, and Seth Blumsack. "An Emerging Giant: Prospect sand Economic Impacts of Developing the Marcellus Shale Natural Gas Play", The Pennsylvania State University, August 2009.

Counterpoint:

Drilling activity is determined mainly by the location of gas reserves and proximity of the reserves to gas markets, not severance tax structure. Pennsylvania has one of the largest natural gas fields in the world. It is in the heavily populated Northeast and can therefore draw premium prices for gas companies. Gas drillers will continue to invest in the Marcellus Shale regardless of the implementation of a severance tax.

Case studies from across the country back up the idea that implementing a severance tax will not decrease drilling activity. Wyoming increased its severance tax rate at the same time neighboring Montana lowered its severance tax rate to incentivize drilling, Even though Wyoming severance taxes are 50% higher than Montana, from 2000 to 2006 Wyoming added more than 5 times in production value than did Montana. A lower tax rate did not increase Montana’s production, but it did cause the state to lose a half a billion dollars of tax revenue. In Utah, significant changes in severance tax rates had a large impact on government revenues but not industry production. In the western states, the dramatically different effective tax rates in the Intermountain West have not led to more or less investment from state to state

Source:

Headwaters Economics, Energy Revenue in the Intermountain West: State and Local Government Taxes and Royalties from Oil, Natural Gas, and Coal, October 2008

Pennsylvania Budget and Policy Center, Reality Check: Natural Gas Industry Report Falsely Claims Sky Will Fall if Severance Tax Enacted, October 2, 2009

According to the Industry:

In the current economy, Pennsylvania is competing for a limited amount of capital investment, and a tax will mean those limited resources could be spent elsewhere.

Source:
Marcellus Shale Committee, “Pa’s Oil And Gas Industry Focuses On Potential Of Natural Gas Development In Opposition To Severance Tax”, March 16, 2009

Counterpoint:
Pennsylvania is competing for investment with states with severance taxes. Pennsylvania is the only state with significant natural gas resources without a severance tax.

According to Russell Braziel at gas market forecaster Bentek, "Because the Marcellus is cheap to develop and so close to market, it will make other plays in the South and Midwest uneconomic," "If you want to be in the gas business, you'll have to be in the Marcellus."

Source: Christopher Helman, Range Resources Is King Of The Marcellus Shale, Forbes Magazine, August 09, 2010

According to the Industry:
Gas drillers are subject to one of the highest corporate tax rates in the country. They already pay a 9.99% Corporate Net Income Tax, a Capital Stock Tax and a Franchise Tax. They shouldn’t be subject to another tax.

Counterpoint:
The drillers of more than 70% of the wells in the Marcellus Shale will pay the state’s 3.07% Personal Income Tax rather than the 9.99% Corporate Net Income Tax. Companies not subject to paying the Corporate Net Income Tax. LLCs must pay the Capital Stock and Franchise tax, both of which are scheduled to be phased out by 2011.

Source:
Pennsylvania Budget and Policy Center, “Over 70% of Marcellus Shale Wells Will be Subject to 3.07% Personal Income Tax – Not the Corporate Net Income Tax”, June 29, 2009.

According to the Industry:
A severance tax on an industry in its infancy will hurt that industry's ability to grow.

Source:

Marcellus Shale Committee, IOGA of Pennsylvania and POGAM Statement on Faulty Analysis of Severance Tax, April 29, 2009

Counterpoint:
The industry estimates that between 2009 and 2010, it will spend 13.3 billion in Pennsylvania. When will it consider itself no longer in its "infancy"?

Source:

Marcellus Shale Coalition, www.marcelluscoalition.com

According to the Industry:
Until 2000, West Virginia and Pennsylvania had similar amounts of gas wells drilled. After that, West Virginia’s tax, combined with higher gas prices, has caused West Virginia to have half as many wells drilled each year.

Source:
Marcellus Shale Committee, “Pa’s Oil And Gas Industry Focuses On Potential Of Natural Gas Development In Opposition To Severance Tax”, March 16, 2009

Counterpoint:
This argument does not account for drilling in Marcellus Shale, which started after 2000. New technologies and increased knowledge of recoverable gas have only recently led to increased drilling in the Marcellus Shale. With about 80% of the Marcellus Shale in Pennsylvania, it is natural that production will increase more rapidly in Pennsylvania than in West Virginia.

With a severance tax in place, between 2002 and 2007, gas production in West Virginia increased by 18%.

Sources:
Energy Information Administration, http://tonto.eia.doe.gov/dnav/ng/ng_prod_sum_dcu_swv_a.htm (last accessed 4/14/09)
Marcellus Shale - Appalachian Basin Natural Gas Play, http://geology.com/articles/marcellus-shale.shtml (last accessed 4/14/09)

According to the Industry:
A severance tax will hurt the economic development that drilling companies could bring to the Pennsylvania. According to House Republican Leader Sam Smith, the proposed severance tax “could have the net effect of driving these businesses and the jobs they bring with them out of the state.”

Source:
Staff writers, “GOP, Energy Task Force unveils initiative to tap state Marcellus Shale gas deposits”, The Punxsutawney Spirit, March 25, 2009

Counterpoint:
History has shown that natural gas development will occur in Pennsylvania, with or without a severance tax. The Marcellus Shale is similar to 2 other deep gas formations, the Fayetteville Shale in Arkansas and the Barnett Shale in Fort Worth Texas. Both Arkansas and Texas have a natural gas severance tax. The economies around these formations have both experienced significant economic growth.

Between 1997 and 2007, the number of gas wells drilled in the Barnett Shale increased from 404 to 8,960, bringing along with it an increase of 32%, or 47,000 new jobs relating to extraction and support activities. 8.1% of Fort Worth’s economy is now made up of Barnett Shale activity.

Development of the Fayetteville Shale began in 2003. According to a report from the University of Arkansas’ Center for Business and Economic Research, in 2007, direct, indirect and induced impacts from drilling in the Fayetteville Shale lead to the employment of over 9,500 people and expenditures of over $2.6 billion.

Sources:
Wood, Michael and Sharon Ward, Responsible Growth, Protecting the Public Interest with a Natural Gas Severance Tax. The Pennsylvania Budget and Policy Center, April 2009.

Projecting the Economic Impact of the Fayetteville Shale Play for 2008‐2012 Executive Summary, Produced for the Center for Business and Economic Research, Sam M. Walton College of Business, University of Arkansas.

According to the Industry:
Instead of a severance tax, Pennsylvania’s citizens should open more of their state forestlands to drilling.

Counterpoint:
This is not a viable alternative to a severance tax. Drilling in state forest lands may not impose an immediate cost to Pennsylvanians, but it could impose long-term impact on industries that rely on our state forests. Before leasing additional acres, the state should evaluate how drilling will affect the timber, tourism, hunting and fishing industries, as well as the precious clean water and air resources provided by our state’s forests.

According to the Department of Conservation and Natural Resources (DCNR), of the 1.5 million acres of state forest underlain by the shale, 700,000 acres have already been leased or the mineral rights under them are controlled by an owner other than the state. 799,600 acres of those that haven’t been leased are ecologically sensitive areas (places with protected species, forested buffers, old growth or steep slopes), designated as primitive and remote lands, or are priority conservation lands. The remaining 20,400 acres are so entwined with the other sensitive areas that they cannot be developed without damaging them. According to DCNR secretary John Quigley: "The science tells us that we've reached the limit."

Source:

Laura Legere, Conservation Department Says No State Forest Lands Are Left For Gas Leasing, The Times Tribune, August 13, 2010

According to the Industry:
At the capitol press conference announcing the “Energize PA” campaign, House Minority Leader Sam Smith (R-Jefferson) stated that one of the reasons he believes the plan to open state forestlands to drilling is superior to the plan to implement a severance tax is drilling on state forestlands “does not present a tax burden for anyone.”

Source:
Staff writers, “GOP, Energy Task Force unveils initiative to tap state Marcellus Shale gas deposits”, The Punxsutawney Spirit, March 25, 2009

Counterpoint:

The severance tax will shift some of the actual costs of drilling on to those directly profiting from it, and away from Pennsylvania taxpayers.

Tourism, timbering, fishing and hunting industries rely on state forests. We must account for the affect of drilling on these vital Pennsylvania industries.

Pennsylvania can look to drilling fields in other states to see how the taxpayers could become responsible for the costs of drilling. One example is Boulder, Wyoming, population 75, which has ground-ozone air pollution problems, due mostly to natural gas drilling. The industry and taxpayers may have costs in the millions to stay within federal clean-air laws. Ozone, which can raise the risk of asthma and heart attacks, has reached levels on winter days seen in big cities.

Source:
The Associated Press, “Pollution in town rivals that of cities, Tiny community's air quality suffers from booming natural gas industry” MSNBC.com, May 8, 2008

According to the Industry:
Marcellus Shale activities will be an economic boom to Pennsylvania, and a severance tax “may derail this future economic train.” The industry's goal is to not “force the industry out of the Commonwealth because of its high tax burden.”

Source:
Independent Oil and Gas Association of Pennsylvania, “Independent Oil and Gas Association of Pennsylvania Issues Statement on Severance Tax”, February 11, 2009

Counterpoint:
Industry officials are well aware of the possibility of a severance tax, yet have not stopped investing in Marcellus activities. In fact, although the country as a whole is experiencing sharp declines in natural gas drilling activities, the interest in the Marcellus Shale remains strong. Recent investments in Pennsylvania include $1.7 billion partnership deal in April 2010 between Pittsburgh-based Atlas Energy Inc. and India's Reliance Industries Ltd., and a $31 billion and in February 2010, a $1.4 billion joint venture between Japan's Mitsui & Co. and Anadarko Petroleum Corp.

These are the sized investments that indicate long-term commitment. As Steven Rhoads, president of the Pennsylvania Oil & Gas Association put it: “We don’t see this going away.”

Sources:
Brubaker, Harold, “Pa. Natural Gas Wells Still Sought Despite Price Drop”, Philly.com, April 2, 2009.

Peden, Tiffany, “Chesapeake Meeting Draws Sizeable Crowd, Representatives Explain How Company Operates”, thedailyreview.com, March 6, 2009

Joel Kirkland, Big Money Drives Up the Betting on the Marcellus Shale, New York Times, July 8, 2010.