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Ohio still working on gas drilling taxation rates

September 12, 2012
By BRENDA J. LINERT , Tribune Chronicle | TribToday.com

Pennsylvania's new fee on gas drillers has raised more than $200 million, but laws that would change the way Ohio taxes the drilling industry are still on the drawing board.

Most of the $206 million generated in Pennsylvania will be distributed to counties and towns to fix roads, restore water supplies and pay other expenses borne by local governments in the Marcellus Shale region.

The Pennsylvania law signed in February imposes a so-called ''impact fee'' of $50,000 for each horizontally drilled well and $10,000 for each vertical well drilled.

Ohio does not collect an impact fee, but rather assesses a severance tax based on natural gas wells' production.

By comparison, in fiscal year 2011, that tax generated $2.1 million at a rate of about 3 cents per thousand cubic feet (mcf) of natural gas generated, according to information provided by the Ohio Department of Taxation. That money stays with the Ohio Department of Natural Resources Division of Oil and Gas Resources Management.

But a new law proposed by Gov. John Kasich and pending in the state Legislature would raise the tax rate on the operators and property owners where new horizontal wells are drilled.

Operators of existing vertical wells would continue to pay about the same rate or less. New Ohio wells drilled horizontally would pay 1 percent of the dry gas produced, and up to 4 percent of the value of the wet gas and oil produced.

Natural gas is considered ''dry'' when it is almost pure methane. It is described as ''wet'' when it contains other hydrocarbons like ethane, propane and butane.

Portions of Ohio's Utica Shale, a sprawling rock formation deep below the earth's surface, is believed to house what could be the nation's greatest reservoir of both dry and wet natural gas.

The legislation also would tax property owners on the value of the minerals below the surface. Payment for those increased property taxes could come from the natural gas companies if contract language is negotiated to include it.

''It depends on the lease, or contracts that the property owners and producers arrange,'' said Ohio Department of Taxation spokesman Gary Gudmundson. ''You have to have some awareness for what's going on.''

Under Kasich's plan, the increased property tax revenue could be used to help fund local government operations and schools, and it also would be used to offset an income tax break to all Ohioans.

Some estimates have projected that the new legislation could generate, within five years, up to $500 million per year.

Ohio Rep. Robert Hagan, D-Youngstown, had previously pushed for even higher taxation of oil and gas drilling companies in Ohio. That legislation never got off the ground.

To date, Ohio has issued permits for 367 horizontal wells. The industry has been described as in its "infancy stages." By comparison, Pennsylvania's $206 million was generated from 4,453 wells in the commonwealth.

The state will take about $25 million off the top. Sixty percent of what's left will be split among 37 counties and some 1,500 municipalities hosting gas wells. The money can be used to fix roads, bridges and other infrastructure.

The Associated Press contributed to this story.

 
 

 

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