6.5% severance tax will have negative impact on jobs, energy production

Posted: February 7, 2017 1:36 pm

Association to Fight Any Effort to Enact Additional Tax on Energy Production in the Commonwealth

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.”

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