American Oil and Gas Reporter - April 2015 - 164

ConventionCoverage: Ohio Oil & Gas Association
factors-including the unwillingness of
the Organization of Petroleum Exporting
Countries to reduce oil output-present
Ohio producers with several challenges,
observed U.S. Representative Bill Johnson,
R-Oh. The resulting glut and price drop
have forced companies to re-examine
drilling plans and lay down rigs.
"On one hand, low oil prices benefit
American families in many ways, particularly at the gasoline pump and at the
grocery store," Johnson said. "On the
other hand, with a stale national economy,
thanks to President Obama's misguided
policies, wages are not keeping pace with
the cost of goods. Average household income is down significantly, and it continues to fall. But shale development is
saving the average American family between $750 and $1,000 a year."
Turning to regulatory policies, the
congressman said congressional oversight
of federal agencies was necessary to
defend oil and gas producers from President Obama's environmental agenda,
which he described as the repackaged
policies of radical environmental groups.
"I serve on the House Energy and
Commerce Committee," he said. "It has
begun work on an initiative called the
Architecture of Abundance. It addresses
a range of outdated energy policies, such
as those crafted when America's energy
resources were believed to be scarce.
This initiative will focus on how best to
modernize our infrastructure, maintain a
diverse electricity portfolio, ensure a
strong workforce, harness energy efficiency and innovation, and unleash new
energy diplomacy."

Severance Tax
During his state legislative update,
OOGA Executive Vice President Shawn
Bennett warned that Governor John Kasich's proposed budget relied heavily on
imposing a 6.5 percent severance tax on
the gross market value of oil and natural
gas produced by horizontal wells, along
with a 4.5 percent tax on horizontally
produced natural gas liquids.
While the budget proposal's taxing
rates differentiate between oil and NGLs,
Bennett said the language failed to consider Ohio's geology. Most Utica Shale
production is condensate, typically with
an API gravity above 65. However, the
proposed tax makes the tax commissioner responsible for classifying oil
and condensate. Consequently, he predicted, many Ohio producers are likely

to receive $24 a barrel for what the
market terms condensate while being
taxed as if they are producing oil sold
for $50 a barrel.
"It is very interesting that tax rates
are based on spot prices as determined
by Ohio's tax commissioner," Bennett
commented.
At the time of OOGA's convention, he
pointed out, Ohio gas producers were getting
$1.67 an Mcf at Dominion Southpoint,
while the price at Henry Hub was $2.74 an
Mcf. "If I was betting, I would say we
would get taxed on $2.74: the spot price
we will never receive," Bennett projected.
The result, he said, is that the state's
oil and gas industry likely will pay an effective severance tax rate as high as 9
percent.
Bennett pointed out that producers already paid a production tax of 20 cents a
barrel for oil and 3 cents an Mcf for
natural gas, dedicated exclusively to financing the Ohio Department of Natural
Resources. Now, he said, Kasich wants
to divert 80 percent of the money toward
income tax reduction.
Bennett added the governor's budget
proposal also called for broadening the
sales tax to include many goods and services used by operators and eliminated
cost recovery provisions.
Kasich also wants to give the tax commission staff authority to request accounts
and records, and to examine under oath
any officer, agent or employed person
involved in the sale, transfer or other
disposition of oil, gas, condensate or
NGLs, Bennett noted.
Legislative Panel
Several state lawmakers criticized the
governor's tax proposals during a legislative round table moderated by Matt

164 THE AMERICAN OIL & GAS REPORTER

Hammond, government affairs representative with Chesapeake Energy Corp.
Representative Andy Thompson, RMarietta, termed Kasich's severance proposal a punitive tax that discouraged additional investment and created disincentives for oil and gas exploration.
"We need incentives to grow and invest. Raising the severance tax is absolutely the wrong idea at this time,"
said Thompson, a member of the House
Finance Committee.
He said the governor's plan to increase
the commercial activity tax from 0.26
percent to 0.32 percent also represented
a danger to the state's economic wellbeing by taxing gross receipts on every
stage of production.
In addition to tax changes, the oil and
gas sector is monitoring HB 8, sponsored
by Representatives Christina Hagan, RAlliance, and Timothy Ginter, R-Salem,
which seeks to change the state's unitization
system, said Representative Al Landis,
R-Dover. Among the bill's provisions:
* The Division of Oil and Gas
Resources Managements must hold
hearings on unitizing no later than 45
days after receiving an application by the
owners of 65 percent of the land area
overlying the pool.
* A decision must be made within 30
days of that hearing.
* The division must follow
requirements for public notices prior to
any hearings.
* The order for unit operations must
include provisions for financing people
unable to meet obligations connected
with the unit.
"This is a very critical bill to the oil
and gas industry. It provides landowners
the opportunity to get to their minerals,"
Landis asserted. "If you are trying to

Ohio Oil & Gas Association
Executive Vice President
Shawn Bennett provides a state
legislative update to the association's winter meeting, saying
Ohio Governor John Kasich's
proposed budget relies heavily
on an oil and natural gas severance tax as well as a tax on
horizontally produced natural
gas liquids.

American Oil and Gas Reporter - April 2015

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