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Monday, February 16, 2015

Ohio Governor Kasich Says Shale Extraction Makes Ohio Poorer as Severance Tax Proposal Comes Under Fire

From Cleveland.com:
"This severance tax and changing the CAT tax and instituting some of these consumption taxes is designed to do what? Promote entrepreneurship in the state," Kasich said. 
"We love the old line industries," he said. "But we want the Facebooks and the Googles and the Pay Pals. ... We want all those businesses. We want advanced energy. We want medical device development. We want better imaging. We want logistics. 
"You have to change the way you do business in this state if you are going to diversify this state away from just the old-line industries." 
Kasich said that on a recent trip to North Dakota, that state's governor, Jack Dalrymple, inquired what Ohio charged oil and gas drillers. 
"When I told him what our severance tax was he just shook his head," Kasich said. 
"If you don't drill, then you don't pay," he said of the tax. "It's only when you sell that you would pay your fair percentage on the basis of the fact that you're making Ohio less wealthy. ... Every time you take valuable things out of the ground you make us poorer."
Kasich's severance tax plan is coming under fire from many different sources, although there are also some who defend it.  First, an op-ed (also from Cleveland.com):
When OPEC refused to cut production last November, it was widely considered a move to cripple U.S. shale energy production. When Gov. John Kasich proposed a huge tax increase on the oil and gas industry last week, he should have understood that the effect on Ohio -- intentions aside -- is likely to be the same. 
Tax increases are rarely a good idea, but this is an especially wrong move at the worst possible time. OPEC's strategy is already taking a toll, as oil and gas companies are announcing spending reductions and layoffs, and reassessing their near- and long-term planning.

Ohio has not escaped the collateral damage: 
• Vallourec Star announced that it was shutting down its $1 billion steel mill in Youngstown for three weeks in mid-February, citing "the declining oil and gas market." 
• GoFrac, which provides a range of products and services to support hydraulic fracturing, shuttered its office in Cambridge, idling about 100 employees. 
• Blue Racer Midstream has put its plans to build a $70 million wet gas processing plant on hold in Mahoning County.

• U.S. Steel announced the temporary closing of its Lorain facility, which provides pipes and tubes for oil drilling and fracturing, laying off 614 employees. 
So what is Gov. Kasich's response to the loss of jobs and investment? He pushes for a huge tax on the companies that create jobs and invest in the state: 6.5 percent for crude oil and natural gas sold at the wellhead and 4.5 percent on natural gas and natural gas liquids that go through processing.

It makes no sense.
 From The Daily Record:
State officials continue to defend the governor's plan to increase tax rates on oil and gas produced via horizontal hydraulic fracturing. 
But Republican members of the House Finance Committee don't appear to be supporting the severance tax proposal, based on their questions and comments to the head of the Ohio Department of Taxation Thursday. 
"Baby steps do tend to be a little more acceptable than large steps," said Rep. Tim Derickson (R-Oxford), noting House Republicans backed a smaller severance tax increase package last session. "This does seem to be a rather large step for me compared to what we were proposing in the last general assembly." 
But state tax Commissioner Joe Testa countered Ohio's severance tax rates remain too low -- 20 cents on a barrel of oil, 3 cents per thousand cubic feet of natural gas produced. 
"We think it's time," Testa said. "... They've had almost four years of practically no severance tax."
And from The Columbus Dispatch:
Gov. John Kasich is back for a third go-around in his quest to dramatically increase the taxes paid on the oil and natural gas that drillers extract from Ohio’s Utica shale fields. 
And the governor wants more money than ever, prompting the industry to counter that Kasich is renewing the fight at the “absolute worst time.” 
With a plunge in oil and natural-gas prices of more than 60 percent in the past year, Ohio’s fracking boom is turning bust, said Shawn Bennett, executive vice president of the Ohio Oil and Gas Association. 
Fewer horizontal wells are being drilled and jobs are being lost as lower prices and a supply glut combine to make it difficult to turn a profit, Bennett said. 
A $180 million-plus annual tax increase, as sought by Kasich, would further discourage drilling investment and job creation, Bennett said.
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