Landowners Benefit From Royalties But Arkansas Gov't Wants More Taxes From Gas Wells

From news article by Jason Wiest, Arkansas News Bureau: Former utility executive . . . Sheffield Nelson's new push for a statewide vote next year on raising the state severance tax on natural gas illustrates the issue's move from afterthought to the front burner. Nelson's bid to put an initiated act to increase the severance tax on the 2008 general election ballot . . . This summer, Beebe urged the natural gas industry to embrace an increase in the tax and to work with him and legislators to reach a consensus . . . . Nelson . . . said he would submit a proposal by the end of November to put a severance tax increase on next year's general election ballot.

Though the two disagree on how new revenues from a severance tax increase should be used - Beebe has proposed earmarking funds for highway improvements and Nelson largely for higher education - their efforts could put pressure on the natural gas industry to go along with a tax hike. . . . At three-tenths of 1% per 1,000 cubic feet of natural gas, Arkansas has the lowest severance tax on natural gas in the nation. Nelson has said it is "almost criminal" that the state charges such a low rate based on volume while surrounding states charge 7% or more of the price of the gas produced. Last fiscal year, Arkansas collected $619,417 from the severance tax, which has remained unchanged since 1957 . . .

Southwestern Energy Co., the largest operator in the Fayetteville Shale play, said its lines of communication are open to both men, according to John Thaeler . . . . But increasing the tax could cause the company and others to curtail their activities in Arkansas . . . "Every dollar paid in severance tax at the very least is a dollar that won't be invested in the development of the Fayetteville Shale," . . . "Increasing the tax will impact what wells we can drill economically," Thaeler said. "When you increase taxes, some wells will not be drilled." . . . Arkansans should consider what their goal is "with regards to adding tax to an industry that is investing large amounts of capital on a high-risk project." Thaeler also cautioned that the tax is a complex issue and that simply raising it would not make Arkansas' severance tax structure comparable with other states. States like Oklahoma exempt gas companies from the severance tax when drilling certain types of wells or when drilling in certain locations to encourage development, Thaeler said. An exploratory well drilled two miles away from an existing well that is currently producing in Oklahoma is exempt from the severance tax for 28 months if it produces, to encourage companies to take the risk. . . .

"Even though our severance tax isn't at the regional level, there still is a tax burden on gas . . . Arkansas charges a 6% residential sales tax on natural gas, something Texas, Oklahoma, Mississippi, Louisiana, Missouri and Tennessee do not charge, according to the U.S. Energy Information Administration. . . . Nelson's plan is to let voters decide next year whether to raise the tax to 7.1 %, the same tax rate as Oklahoma. Beebe said he would take all arguments into consideration before formulating a plan . . . [Read More]

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