American Oil and Gas Reporter - July 2015 - 36

Ohio Lawmakers Reject Severance Tax

COLUMBUS, OH.-Ohio's Republican
legislators say they will not support Governor John Kasich's proposal to increase
oil and natural gas severance taxes.
According to Shawn Bennett, executive
vice president of the Ohio Oil & Gas Association, the governor sought a 6.5 percent
tax on oil and gas from unconventionally
produced wells. If the natural gas was
processed, then there would be a 4.5
percent tax on tail gas and natural gas
liquids. In 2014, Kasich called for a 2.75
percent severance tax on oil and gas.
The Ohio legislative session was scheduled to close June 30, and in mid-June
Bennett predicted legislators would go
home without approving any new taxes.
Instead, he says, lawmakers opted to
work with the Kasich administration by
creating a study group, which is required
to submit a report on taxes by Oct. 1.
According to media reports, Senate
President Keith Faber, R-Celina, and
House Speaker Cliff Rosenberger, RClarksville, agreed there was not enough
time in the 2015 session to reach an
agreement on the severance tax proposal
before the June 30 deadline for passing

the budget, and instead created the Ohio
2020 Tax Policy Study Commission.
Bennett adds that OOGA will work
with the commission to help educate members while they debate their next round of
tax policies. Ohio's fiscal stability suggests
the state requires no severance tax increase
for budgetary purposes, he points out. Instead, Bennett says, Kasich is promoting a
severance tax increase as the key to a personal income tax cut for state residents.
The decision to delay considering a
severance tax increase has drawn criticism
from the governor's office. A Kasich
spokesman says one of the reasons Ohio
has created more than 350,000 jobs is
because of its tax cuts. Revising the severance tax structure will enable more tax
cuts to help continue job growth, the
spokesman poses.
Bennett responds by saying OOGA
continues to oppose any increase in the
state's severance tax rate from $0.20 a
barrel. However, he adds, OOGA will
continue to participate in tax discussions.
Tax Analysis
A study released by Southern Methodist

University in April laid out the negative
impacts if Ohio increased severance taxes
significantly. Bennett says the study shows,
"Now is the worst time to increase oil
and gas severance taxes, since the industry
is at the bottom of the business cycle."
According to SMU's analysis, the effective severance tax rate could be as
high as 7.5 percent on oil and 13.0 percent
on natural gas if it was based on a national
index such as Henry Hub for gas. The
report points to a regional supply glut
and lack of pipeline capacity as key
factors in increasing the effective rate.
Global factors-including commodity
price declines, Appalachian gas producers'
deep price discounts and the steep decline
curve in Utica Shale wells-combine to
make the economics of the state's shale
operations more uncertain than their counterparts in other fields, the study says.
Adding additional tax burdens and cost
uncertainty to oil and gas prospects will
depress an already struggling economy,
it forecasts.
The study also warns:
* Governor Kasich's proposal is tantamount to a 1,400 percent increase in

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American Oil and Gas Reporter - July 2015

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