PA’s Oil, Gas Industry Focuses on Potential of Natural Gas Development in Opposition to Severance Tax

HARRISBURG, Pa. – Representatives of Pennsylvania’s oil and gas industry expressed concern today about continuing calls for the imposition of a severance tax on natural gas extraction in Pennsylvania at this time, citing a number of factors that could combine to slow the development of the industry and the economic benefits it will provide across the Commonwealth.

Pennsylvania Oil and Gas Association President Stephen Rhoads urged caution in approaching any tax proposal that can influence investment decisions being made by exploration and production companies.

“In this economic environment, companies actively involved in the development of Marcellus Shale must carefully determine where their manpower, equipment and resources should be committed and operated for an extended period of time,” said Rhoads. “Pennsylvania is competing against states around the country for that investment, and a severance tax, imposed just as the industry is getting a foothold on this important shale development, will have a considerable negative impact on the state’s ability to compete with those states.”

“We must also be careful because a tax like this also could undermine the economic viability of the Commonwealth’s indigenous shallow gas industry,” Rhoads said. “All of Pennsylvania’s current production comes from economically marginal shallow wells. Producers operating these wells make a significant economic contribution to many rural Pennsylvania communities.”

Rhoads also emphasized the need to consider the efforts by the natural gas companies to work with communities and individual property owners regarding issues rather than attempt to mandate tax revenue be allocated to local governing bodies.

“Our industry works cooperatively with property owners and the communities in which we do business to provide compensation for equipment such as pipelines and support structure, doing so on a site-specific basis to understand and resolve concerns.,” he said. “Further, we have a strong track record and continuing commitment to repair and restore local roads that might be affected during the drilling process, building a relationship with local officials that typically results in improved road conditions and related facilities.

“More taxes are not the answer,” added Rhoads. “The number of onshore drill rigs in operation has decreased in the last year, and the price of gas, the availability of credit and the business environment faced by the drilling companies all will be factors in determining which states see drilling activity and the economic benefits it provides.”

The committee also presented information regarding comparisons being made by some organizations between Pennsylvania and West Virginia, which imposes a severance tax on natural gas extraction:

  • In the decade leading up to the year 2000, the number of wells drilled each year in Pennsylvania and West Virginia was nearly identical. Since that time, as natural gas prices trended higher, the number of wells drilled in West Virginia each year has been approximately half of the amount drilled in Pennsylvania.
  • The number of wells influences the number of workers employed. According to recent published reports, West Virginia supports 10,000 fewer jobs in the oil and gas industry than Pennsylvania, an employment rate that will continue to be influenced heavily by Marcellus Shale drilling activity.
  • Pennsylvania’s shallow wells historically have produced smaller volumes of crude oil and natural gas, making them only marginally profitable. An additional tax on those shallow conventional wells, which are being drilled in many counties across the state, will have an extremely negative impact on that portion of the oil and gas industry.

The Pennsylvania Oil & Gas Association and the Independent Oil & Gas Association of PA:

The Pennsylvania Oil & Gas Association (POGAM) and the Independent Oil & Gas Association (IOGA) are the two principal non-profit trade associations of the Commonwealth’s independent oil and gas producers. POGAM and IOGA promote the general welfare of Pennsylvania’s crude oil and natural gas exploration and production industry. These two associations are committed to the economical and environmentally responsible development, production and use of the Commonwealth’s crude oil and natural gas resources.

Marcellus Shale Committee:

Formed in 2008, the Marcellus Shale Committee represents the oil and gas industry in Pennsylvania on matters pertaining to the acquisition, exploration, drilling, and development of the Marcellus Shale natural gas resource and provides a unified voice before all state, county, and local government or regulatory bodies. The committee, sponsored jointly by the Pennsylvania Oil and Gas Association and the Independent Oil and Gas Association of Pennsylvania, includes independent producers with historical expertise in the Pennsylvania oil and gas fields and national companies dedicated to bringing their industry experience and resources to achieve common goals.