There was likely a reason that Gov. Tom Wolf chose to gloss over his real-life tax increases during his FY 2017-2018 budget address this week. While the tone and message of this year’s speech was far more accommodating and positive than last year’s finger-wagging lecture, it still included plans for tax increases on rural communities and on the state’s natural gas development industry.
In the case of natural gas producers, the tax proposal is worse than it’s ever been: a 6.5 percent severance tax is a 30 percent increase over the earlier proposed rate of five percent. Yes, here we go again. A punitive tax being imposed on an industry that is barely holding on to its economic viability in the face of low commodity prices.
We continue to face a significant strain on our industry from a balance sheet perspective, and now must stare down a severance tax proposal that will have negative impact on jobs, energy production and the continued movement toward our nation’s independence from foreign fuel. What the industry will bring to the region? As a result of drilling, the cracker plants will attract new industries to the Appalachian Region. New industries = new jobs + new tax sources + an improved state economy. And speaking of jobs…..the unions, especially the pipefitters and operating engineergs, are huge supporters of the industry. They have initiated letter-writing campaigns to the Governor, and they spoke at the Williams Oil/FERC town hall meeting in Lancaster County in support of the Atlantic Sunrise project. So there is a working relationship between the oil & gas industry and several unions statewide; what is the Governor missing?????
PIOGA has vowed to ‘Fight Any Effort to Enact Additional Tax on Energy Production in the Commonwealth,’ as summarized in the statement issued following this week’s budget address, below.
Pennsylvania Independent Oil & Gas Association President & Executive Director Dan Weaver today issued the following statement regarding Gov. Tom Wolf’s proposal to include a 6.5 percent natural gas severance tax in Pennsylvania’s FY 2017-18 state budget:
“The governor and state lawmakers who are seeking again to impose a severance on natural gas production are ignoring a fundamental market reality with this ill-advised proposal: the low energy prices that people across the state are enjoying continue to translate into very difficult times for natural gas producers that would be made far worse with an additional tax burden.
“This is the same market reality that existed during the last discussion about imposing an additional tax on natural gas production, and that will exist for the near future. This market reality means that a 6.5 percent severance tax rate would have a huge detrimental impact on natural gas development and jobs, while raising very little revenue to make even the slightest dent in Pennsylvania’s current and projected budget deficits.
“The Appalachian Basin is in a long-term negative pricing environment that has a potential to be reversed with greatly expanded pipeline capacity that will take at least a few years to resolve under a best-case scenario. Pennsylvania’s current unconventional drilling rig count of 33 is about one-third more than Ohio’s 21, while West Virginia continues to struggle, in part due to that state’s additional severance tax that was enacted a few years ago.
“The best that can be said is that we are holding onto our rigs and our jobs by our fingernails by being as smart and efficient as possible in our operations. All of that will change for the worse with any type of severance tax, without any significant effect on reducing the state budget deficit.”