American Oil and Gas Reporter - April 2015 - 176

ConventionCoverage: Pennsylvania Independent Oil & Gas Association

Severance Tax Issue Clouds
Pennsylvania's Future
By Dan Holder

CHAMPION, PA.-The Pennsylvania
Independent Oil & Gas Association decided to title its 2015 winter meeting
"Clouds on the Horizon" because that
explained the association's business climate expectations, PIOGA President and
Executive Director Louis D'Amico said.
"I don't think clouds are on the horizon.
I think the clouds are on top of us,"
D'Amico asserted as he opened the event,
held Feb. 24-25 at the Seven Springs
Mountain Resort in Champion. "We are
getting hammered on the price of our
commodity, from the environmental community, by the government, by our new
governor. I wish I could say this is going
to be easy and this is just a short-term
thing. I don't think anyone believes that.
I certainly don't."
PIOGA is dealing with those issues,
D'Amico said, with committees such as
its environment and safety groups, watching out for members.

Severance Taxes
"I hate severance taxes," D'Amico
stated as he began his tax presentation.
"Whether I worked for you or not, I
would oppose the concept. The government is singling out our industry."
Pennsylvania Governor Tom Wolf has
proposed a 5 percent severance tax on
the value of the gas at the wellhead, plus
4.7 cents per Mcf of gas extracted. The
governor has stated the proposal is modeled on West Virginia's tax system, but
D'Amico pointed out the actual bill language showed the only concept used was
the rates.
The plan calls for removing the impact
fee authorized by 2012's Act 13, which
charges companies $50,000 for each new
horizontal well, while assessing smaller
vertical wells $10,000. It also promises
local governments continued revenues
from the severance tax equal to the impact
fee, while most of the tax is to be directed
to increased education funding and debt
servicing of bonds issued to support alternative energy development, D'Amico
said.

Despite optimistic estimates advanced
by the governor, D'Amico asserted market
conditions made any severance tax a
heavy burden, noting that with gas prices
below $3 an Mcf, the effective rate of
the proposed severance tax is close to 67 percent.
Operators have struggled with the impact fee, on top of the other taxes-including corporate income, which the governor wants to expand while cutting the
rate, and capital stock-also levied on industry. D'Amico warned that the additional
expense of a severance tax could be
merely the start of industry's problems.
Among his arguments for introducing
a severance tax, Wolf has compared the
tax burdens in his state with those of
West Virginia, D'Amico pointed out. In
1987, West Virginia imposed a 5 percent
severance tax on gross receipts for oil
and gas production.
"Compare the number of wells drilled
in West Virginia and Pennsylvania,"
D'Amico suggested. "It does not sound
that healthy to me, and it has not been
since West Virginia put in a severance
tax. When that tax came to West Virginia,
Pennsylvania didn't do the same thing.
What happened? Pennsylvania boomed.
People were drilling wells into the Medina
formation; as bad as production was in
the Medina, it actually made money.

176 THE AMERICAN OIL & GAS REPORTER

Pennsylvania's oil and gas
industry is facing a slew of
threats-from commodity
prices to attacks from the
anti-development community to the state's political leaders-and PIOGA President
and Executive Director Louis
D'Amico tells the audience
at the association's winter
meeting the challenges will
not likely be resolved in the
short term. PIOGA held its
meeting Feb. 25-25 at the
Seven Springs Mountain Resort in Champion, Pa.

What happened in West Virginia?
Nowhere near as much drilling."
In response to complaints about the
proposed severance tax, D'Amico reported, the governor threatened a moratorium
on oil and gas drilling after having reimposed the moratorium on state forest and
parks leasing imposed by his predecessor,
Governor Ed Rendell. D'Amico pointed
out the action would shut down an industry
responsible for 90 percent of all jobs created in Pennsylvania between 2005 and
2012, and reduce U.S. natural gas production by 20 percent.

Fighting Back
D'Amico urged people working in the
industry to individually address the challenges ahead with family, friends, royaltyand landowners, and neighbors. "We
have a lot of taxes that nobody knows
about, as well as ever-increasing permitting
costs, and we have not done a good job
in communicating that message," he offered. "We need you; we need the other
industries that depend on us. When we
say something about taxes, we do not get
as much media attention as a royalty
owner or other industries that are surviving
because we are here."
Producers have allies in the severance
tax fight, D'Amico asserted. The Pennsylvania Chamber of Commerce is coordinating



American Oil and Gas Reporter - April 2015

Table of Contents for the Digital Edition of American Oil and Gas Reporter - April 2015

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