American Oil and Gas Reporter - June 2015 - 36

Pennsylvania Tax Formally Introduced
WEXFORD, PA.-The threat of a natural gas severance tax got more real for
Pennsylvania operators with the introduction in mid-May of a pair of bills that
would implement the tax as a key component of Governor Tom Wolf's inaugural
budget proposal, the Pennsylvania Independent Oil & Gas Association reports.
The identical HB 1142 and SB 116
would impose a severance tax of 5.0 percent plus 4.7 cents an Mcf on unconventional natural gas production. The 5
percent fee would include a floor value
for gas of $2.97 an Mcf, which PIOGA
points out was significantly more than
what producers were receiving for their
gas at hubs in the region at the time the
bills were introduced, and is a unique
feature among state severance taxes.
Further, the association notes, the legislation bars producers from passing along
the cost of the tax to royalty owners and
nullifies any existing or future leases that
allow such deductions, a provision that
PIOGA says many observers have predicted
would be challenged immediately in court.
It adds that in public statements, Wolf has
indicated that his tax-dubbed the Pennsyl-

vania Education Reinvestment Act-would
generate more than $1 billion annually by
the 2017 fiscal year, with the bulk of the
proceeds going toward public education.
PIOGA says Wolf has defended his
proposal as a wise use of the state's resources at a time when schools need
more funding, and has called it "a reasonable tax-in line with our neighbors."
PIOGA President and Executive Director Louis D. D'Amico counters that
Wolf's proposal would deliver a devastating blow to the industry during a prolonged period of depressed prices. "Given
the artificial floor of nearly $3 an Mcf,
the effective rate of this tax is estimated
to be as high as 15 percent," D'Amico
says. "I don't see how our governor can
say with a straight face that there is anything fair or reasonable about it."
D'Amico points to an analysis done
for the American Petroleum Institute that
shows the severance tax would lead to
1,364 fewer wells, nearly 18,000 fewer
jobs in fields supported by the industry,
and 2.86 trillion cubic feet less natural
gas produced in Pennsylvania by 2025,
compared with levels projected without

the tax. The API study also predicts the
tax will yield only half as much revenue
as the governor claims.

Diverse Opposition
PIOGA says opposition to Wolf's severance tax goes far beyond the oil and
gas industry. Municipal and county officials across Pennsylvania have expressed
concern about eliminating the unconventional well impact fee created under Act
13 of 2012. The majority of the fee paid
annually by the operators of unconventional gas wells is funneled directly to
county and local governments, the association explains, accounting for more
than $632 million in revenue in the three
years since its inception.
Although HB 1142 and SB 116 mimic
in large part the payouts to local jurisdictions and various state programs, PIOGA
notes the total is capped at $225 million-
the most the impact fee has generated
thus far in any one year. Organizations
representing Pennsylvania's township supervisors and county commissioners have
gone on record as opposing a limit on
what they could possibly receive once

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36 THE AMERICAN OIL & GAS REPORTER
American Oil and Gas Reporter - June 2015

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