OOGA: Severance tax hike would hinder Ohio shale investments

By OGJ editors

Ohio’s oil and gas producers believe Gov. John Kasich’s proposal to increase the severance tax could discourage future investments in the state’s emerging Utica and Marcellus shale plays, said members of the Ohio Oil & Gas Association.

Kasich proposed changes to his state's oil and natural gas severance tax to help finance a planned $1 billion state income tax cut by 2015 (OGJ Online, Mar. 26, 2012).

Thomas E. Stewart, OOGA executive vice-president, said Kasich often discusses the proposed severance tax increase as applying to big, out-of-state companies, yet OOGA believes hundreds of Ohio-based energy producers also could find themselves burdened with a larger tax bill.

“Ohio’s oil and gas industry supports the governor’s goal of an income tax cut for hardworking Ohioans, but we believe the burden of funding the tax should not fall on Ohio’s landowners or on the state’s emerging, but yet economically unproven, shale industry,” Stewart said.

Under Kasich's proposal, oil and natural gas liquids recovered through hydraulic fracturing in the Utica and Marcellus shale plays would be taxed at 1.5% of annual gross sales in the first year and 4% after that.

An initial 1.5% rate could be extended for an additional year only if initial costs to drill the well had not been recovered, Kasich said. Ohio's currently has no tax specifically covering NGLs.

“Ohio’s shale industry holds great promise,” Stewart said, but added that the severance tax proposal could be “too much and too soon,” discouraging oil and gas investments in the state.

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