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Friday, February 6, 2015

Governor Kasich Proposes Huge Severance Tax Increase

From Cleveland.com:
Gov. John Kasich is trying once again to raise Ohio's tax rate on fracking activity in the state. But his latest budget plan, released Monday, calls for a much higher tax than he's sought in the past. 
Kasich's two-year budget plan, unveiled Monday, would charge horizontal drillers in eastern Ohio a severance tax of 6.5 percent for crude oil and natural gas sold at the source -- or $3.25 per $50 barrel of oil. 
Natural gas and natural gas liquids that go through processing would be assessed a 4.5 percent tax per thousand cubic feet, which would equal about 16 cents given a spot price of $3.59 in December
Currently, Ohio charges 20 cents per barrel of oil, while the tax on natural gas is 3 cents per thousand cubic feet. 
Conventional drillers in the state would continue to pay the same rates currently in place.
The governor's budget projects the tax hike would bring in about $260 million during the next two years.
Read more here.

The Ohio Oil and Gas Association, not surprisingly, was unimpressed by Kasich's idea of taking such a large bite out of horizontal drillers' wallets.  The OOGA issued this statement:
Today, the administration previewed broad tax proposals as part of the biennial state budget. While we plan to thoroughly review these proposals as they move through the legislative process, we have serious concerns about how these tax policies could impact Ohio workers and businesses. 
With a 60 percent decline in oil and natural gas prices over the last year due to global and external factors, we simply cannot afford a tax policy that would discourage operators from investing in our state and instead move their capital to more profitable shale plays. 
Many companies involved in the Utica have already reduced their budgets, announced layoffs and curtailed development plans due to commodity prices. Without this industry continuing to grow in eastern Ohio, many small businesses will also be forced to cut back and lay off local workers. 
We hope Ohio will adopt tax policies that encourage business investment and growth, including oil and gas development, which has been a key driver of Ohio’s economic success.
While in the past it could be argued that the smaller severance tax Kasich proposed was not enough to really discourage development of the Utica shale, putting forth the idea of a 6.5% tax at a point where oil and natural gas prices are tanking and drillers are already hesitant to move forward with development is a rather interesting move.

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