BLOG: Why is a Severance Tax Fair in Every State Except Pennsylvania?

By: Sam Robinson, Senior Policy Analyst

February 12, 2016

Pennsylvania is the only gas-producing state in the country without a severance tax. States like Texas, Ohio, Oklahoma and West Virginia all have one.

Have those and every other state with a severance tax also driven the industry into bankruptcy?

No.

To the contrary, drillers have made billions of dollars in revenue in those states – as well as Pennsylvania.

Prices are low now, but almost no one believes they won’t go up. Natural gas drillers have been telling the same story – that a severance tax in Pennsylvania will hurt their operations – even when prices were higher.

This highlights how ridiculous the argument is on the impact of natural gas companies paying the same, fair share they pay in other states on natural gas extraction in Pennsylvania. Why don’t Pennsylvanians deserve the same benefits of extraction that other states get?

Plenty of Republicans also support a severance tax, even as their leaders oppose the Governor on the severance tax at every turn. On Monday, two Republican severance tax proposals were highlighted in the House.

The Governor’s proposal maintains the impact fee, with producers able to take a credit against the severance tax amount. Meaning they will not pay the impact fee plus a 6.5 percent severance tax. The total revenue generated by the 6.5 percent severance tax is estimated at $350.9 million in 2016-17, with a projected $133.1 million credited for the impact fee providing a net new revenue of $217.8 million for 2016-17.

Energy companies are even telling their shareholders that they are “uniquely positioned” to succeed in spite of temporary low prices.

While active drilling rigs are down, each rig that continues to work is much more productive than even a few years ago. Each rig drills more wells per year and at a much lower cost. Right now, gas production is stable in Pennsylvania.

Some new pipeline capacity has also come on line already, and more will come online in 2016, and major improvement on pipeline capacity will take place in 2017. The new capacity has already shrunk the 2014-15 price differential between Henry Hub and PA production. That price differential will continue to shrink in 2016 and 2017. Lastly, prices are likely to move back above $3 in 2016-17.

Pennsylvania residents deserve the same benefits as other states. It is time for Republican leaders and the industry to stop the games.

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