Governor wants Ohio to ‘modernize’ its severance tax

It’s time for Ohio to “modernize” its severance tax so the state can more fully benefit from oil and gas discoveries there, Gov. John Kasich (R) said in his 2013 State of the State address. He called for the increase as he advocated cutting taxes on small businesses by 50% and lowering the state’s sales tax to 5%.

“I know many of you are concerned about that,” Kasich said in his annual address on Feb. 19. “Since we started talking about it, I think the amount of money invested in our state in our reserves is about $4 billion.”

North Dakota’s oil and gas production also is growing, and its severance tax is 8-9%, he continued. “They're exploding. They can't even find enough workers out there,” Kasich said. “The problem is oil companies only [in Ohio] pay two dimes of tax—20¢—on a $90 barrel of oil. It's not sustainable. And I want us to think about that.”

Earlier in his remarks, however, the governor specifically mentioned oil and gas as an industry that can contribute to the state’s prosperity under regulations that emphasize common sense.

“But we also believe that in the process of doing it, we cannot endanger people and we cannot endanger the environment,” he continued. “And if you use common sense, you, in fact, can protect the public safety. You, in fact, can protect the environment and you can create jobs, and we are doing it in Ohio.”

Specific provisions

While large producers would see “modest” increases, the rates would be lower than in Pennsylvania, West Virginia, Texas, North Dakota, and most other producing states, according to the severance tax portion of Kasich’s Ohio’s Jobs Budget 2.0 proposal.

In addition to the 20¢/bbl assessment on oil production, Ohio presently taxes natural gas at 3¢/Mcf. Kasich proposes different treatments for conventional and unconventional production.

Conventional oil production taxes would not change. Conventional gas wells producing less than 10 Mcfd would pay no tax, while those producing 10 Mcfd or more would pay a 1% rate up to 3¢/Mcf. The current policy of not separately taxing natural gas liquids recovered during conventional production would not change.

Crude oil produced from what the state calls “high-volume horizontal wells” would be taxes at a 1.5% rate during the first year of production, and rise to a 4% rate. Unconventional gas production would be taxed at a 1% rate. NGLs from that production would be taxed at 1.5% in the first year and 4% subsequently.

Responding to Kasich’s SOTS address, Ohio Petroleum Council Legislative Analyst Legislative Analyst Robert Eshenbaugh said he was encouraged by the governor’s focus on shale energy. “We will continue to work closely with the administration and legislative leaders to advance smart regulatory and economic policies for the benefit of all Ohioans,” he indicated.

Contact Nick Snow at nicks@pennwell.com.

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