COLUMBUS — A leader in the Ohio oil and natural gas industry on Wednesday told lawmakers that there’s “nothing special” about production in the state that would guarantee drillers would come here with higher tax rates.
Gov. John Kasich has called the industry-backed tax hike on a burgeoning drilling boom concentrated in eastern Ohio insufficient.
But the industry tried to convince a legislative committee that House Bill 375 will boost revenues for regulating the proliferation of wells and bring tax fairness to well owners and drillers.
“My contention is the tax rate that has been offered is too low,” Rep. Mike Foley (D., Cleveland) said.
“We’ve got more valuable gas or oil coming out than other states do. The investment is going to come here whether the tax rate is 1 or 2 percent or 4 or 5 percent.”
But Tom Stewart, executive vice president of the Ohio Oil and Gas Association, said producers may be less willing to take chances on what could be marginal wells producing less desirable products with lower heat content if the cost of doing business is raised.
“The concept that somebody will come to Ohio and they must stay is not true,” Mr. Stewart said.
The House plan is expected to generate about $2 billion in new revenue over 10 years compared to $2.8 billion under Mr. Kasich’s higher tax-rate proposal.
But unlike Mr. Kasich’s plan, which would have provided a dollar-for-dollar income tax cut for all Ohioans, House Bill 375 provides for a general tax cut only after the state pays for regulation, caps abandoned wells, reclaims land, and offsets income and business tax breaks for well owners and producers.
The Ohio Environmental Council was also not happy with Mr. Kasich’s proposal to put every dollar raised from a higher severance tax on drilling into income tax cuts.
But House Bill 375 doesn’t go far enough, said staff attorney Trent Dougherty
“It looks like a lot of losses for the (budget), even some losses for the Department of Natural Resources that we were hoping would be the beneficiary of this,” he said. “... We’re already at a thousand permits. They’re talking about 2,500 permits by 2015.”
The idea is to take advantage of a burgeoning hydraulic fracturing, or “fracking,” industry concentrated in a handful of eastern Ohio counties, using chemically treated fluids at high pressure to fracture shale to release oil and gas trapped within.
The state now charges 3 cents per 1,000 cubic feet of natural gas and 20 cents per barrel for oil.
House Bill 375, sponsored by Rep. Matt Huffman (R., Lima), would phase in a new rate at 1 percent on the well owners’ net proceeds — gross receipts minus post-production costs — during the first five years of operation.
The rate would then climb to 2 percent during a well’s productive years before dropping again to 1 percent as the well nears the end of its productive life.
That compares to a phased-in rate of 4 percent that Mr. Kasich had proposed.
Contact Jim Provance at: email@example.com or 614-221-0496.