Facts and Myths About a Natural Gas Tax

Gov. Rendell has labeled himself as the “best ally” of the natural gas industry, an odd statement for someone who frequently gets the facts wrong. Here are some corrections to common myths perpetuated by the Governor.

The severance tax is modeled on that used in West Virginia, where gas production rose 20 percent from 2002 to 2007, indicating that the tax is no deterrent to development.”

  • In the last 10 years, drilling activity in the Commonwealth has increase by 400%, however, West Virginia has only seen a 20% increase. Additionally, Devon Energy, one of Fortune Magazine’s 100 Most Admirable Companies, stated on a CNBC interview that the company would not consider drilling in Pennsylvania because of the political problems.

Natural gas companies are accustomed to paying a severance fee,” Rendell said in a statement accompanying the fiscal 2011 budget. “Since every other major gas-producing state imposes one, drilling companies accept it as a cost of doing business.

  • Most states with difficult-to-drill shale formations have reduced their severance tax to encourage drilling. For example:
    • Texas and Arkansas reduced their severance tax for high-cost gas wells by nearly 80%.
    • Oklahoma applies a severance tax of 7% on natural gas extraction, but exempts all horizontally-drilled wells until payback (when the company recovers its multi-million dollar per-well head investment).
    • Louisiana suspends its severance tax for horizontally-drilled wells until after they have been in production for two year or reached payback.

The industry rigidly opposes the tax

  • Chesapeake Energy Corp vice president of government relations, David Spigelmyer said the industry oppose the tax if “it’s build around the West Virginia model” but they are open to discuss “a tax modeled on one in Arkansas, which offers reductions based on capital investment”.

Polls show strong support for a severance tax

  • The most recent statewide survey by Franklin and Marshall College found 49% of Pennsylvanians oppose the severance tax and only 35% support it.