American Oil and Gas Reporter - November 2015 - 29

both sides of the aisle and the governor
found they could agree on was SB 875, a
measure encouraging oil and gas operators
to use treated mine water during drilling
and stimulation.
The bill provides that an oil and gas
producer is not liable for the ongoing
abatement of mine water when acquiring
treated water for its own operations. Likewise, a mine operator is not liable for offsite use of treated water by oil and gas operators, Benson details. He says the meas-

ure does not limit an operator's liability for
spills or illegal releases of treated mine water, or relieve a mine operator or mine water user from obligations under state law.
Benson says the PIOGA-supported
measure passed both chambers by large
margins and was approved by Wolf on
Oct. 8. He says state officials estimate acid
mine water has harmed 5,000 miles of waterways in Pennsylvania.
"We understand there has been some
limited use of mine water by our industry,

but operators have had concerns about their
liability because of a state law that could
make anyone who uses such water responsible for ongoing treatment of the source
of the water," Benson says. "SB 875 will
provide producers with a new source of
water for hydraulic fracturing while reducing the amount of mine water harming the
state's streams and rivers."
Similar legislation stalled in the Senate during the general assembly's last session, he mentions.
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Ohio Advises No Severance Increase

COLUMBUS, OH.-The Informal
Working Group on Ohio's Oil and Gas Industry and Severance Tax has recommended the state not change its oil and gas severance tax rate during present market
conditions.
This summer, the Ohio Legislature
formed this work group, which is composed of three members from each chamber of the legislature and one from the governor's office, to evaluate whether the state
should increase its severance tax rate.
(AOGR, September 2015, pg. 35)
In its conclusion, the work group
writes it has conducted "a series of meetings with various stakeholders to compile
information and provide a foundation for
the Ohio 2020 Tax Policy Study Commission to build on its larger review of
Ohio's overall tax structure."
While the work group acknowledges
that Ohio's total tax burden on the industry is lower than or as low as other states
with a severance tax, it also says widely
fluctuating commodity prices and market
trends make increasing tax rates imprudent
at present.
"Given market conditions, the group
suggests considering a trigger or a slow
phase-in of a reformed severance tax," the
work group's report states. "Given those
provisions, Ohio should not expect to see
a new revenue stream materialize overnight
until market conditions improve. This is
another reason why discussing severance
tax reform is prudent."
The work group adds that, if the state
decides to change its severance tax rate in
the future, several factors-such as price,
production and expected ultimate recoverables-should be considered when determining an appropriate rate.
According to the work group, new revenues generated from a changed severance
tax structure should be used for several
things, including:
* Assisting local governments in shale
play areas to improve infrastructure,
equipment, and services to accommo-

date the oil and gas industry, and also benefit the citizens within their counties;
* Making adjustments to Ohio's tax
structure to help make Ohio more competitive in the national and international
marketplace; and
* Investing in asset-building opportunities to grow Ohio's economy and improve the quality of life for all residents.

Positive Outcomes
Governor John Kasich comments that
he found the group's recommendations
"disappointing," and says that he will continue to push for an increase. "Our proposal is reasonable and will continue Ohio's
competitive advantage over other oil and
gas states," Kasich states. "Make no mistake, our fight to get Ohioans the income
tax cut they deserve will continue."
The Ohio Oil & Gas Association says
it commends the work group "for recognizing that our industry is in the middle of
its most severe downturn in the last 30
years, and that increasing the severance tax
now would exacerbate an already dire situation."
OOGA Executive Vice President
Shawn Bennett clarifies that, now that the
workgroup has made its recommendations,
the topic of increasing severance taxes likely will remain dormant for the next year
or two.
"The work group's findings are a positive outcome for the industry, but no one
is spiking the football in celebration," Bennett describes. "Ohio's industry is seeing
the detrimental effects of today's price environment firsthand, but these recommendations will help defer conversations
about increasing severance taxes until
the markets recover."
Bennett adds that severance taxes fund
the state's oil and gas regulatory agency
without difficulty, as intended, so a comparison with other states' tax structures is
unfair, unless the legislature plans to
change Ohio's overall tax structure.
"Ohio's severance tax structure is the

same across all mineral extraction industries, including coal, oil and gas, and aggregates," he says. "So, changing it for oil
and gas would single out one industry to
pay far higher severance taxes than the others.
"I can't speak as to what the legislature
will do, but I would imagine the issue
won't be discussed again for the remainder of the year," he continues. "But who
knows what next year brings?"

Unitization Bill
As of late October, the Ohio Senate had
yet to hold hearings for the unitization bill,
HB 8, Bennett says.
The House passed the bill unanimously in March. Introduced by Representatives
Christina Hagan, R-Alliance, and Tim Ginter, R-Salem, HB 8 would ensure the Division of Oil and Gas Resources Management establishes reasonable and firm
timelines to process unitization orders. This
would allow operators to plan and allocate
capital without having to wait indefinitely, which has been a problem in the past
(AOGR, September 2015, pg. 32).
"OOGA is hopeful the Senate will hold
hearings on HB 8 in the next few months,
so we can have these important discussions," Bennett says. "Unitization doesn't
affect only operators; it also impacts
landowners who are in these units, and are
unable to monetize their acreage and benefit from oil and gas development."
Bennett notes the Ohio legislative session extends over two years, so the Senate will have until December 2016 to complete work on HB 8.
❒

Coming In December

The Stimulation & Completion
special reports spotlight operator
case studies of completion optimization and productivity improvement
programs in the Wolfcamp, Eagle
Ford and Fayetteville shale plays.
NOVEMBER 2015 29
American Oil and Gas Reporter - November 2015

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