By JACKIE BORCHARDT
Dayton Daily News
Oil and gas executives are bracing for a fight this year against an unlikely foe — a pro-business Republican governor.
Ohio Gov. John Kasich wants to raise taxes on the oil and gas industry so he can lower the income taxes Ohioans pay.
Kasich’s plan, which he says will benefit small businesses and individuals, would hit high-producing “fracked” wells hardest. But Ohio oil and gas producers say it could sink smaller companies before they have a chance to tap the technology, and stifle production in an industry that has potential to produce explosive job growth.
A recent industry- supported study estimated unconventional drilling supports 38,000 jobs including 4,210 direct jobs in Ohio. That number is expected to balloon to 143,000 by 2020 and to 266,000 by 2035, according to research by Information Handling Services, Inc., a Colorado-based company that analyzes data for energy, security and environmental industries.
Kasich introduced the tax increases in February 2012 along with a dozen other priorities for state lawmakers to consider. Republicans in the Ohio House of Representatives axed the plan, saying it needed a thorough vetting.
Industry leaders and analysts criticized Kasich’s revenue estimates and what they called minimal savings to most Ohio taxpayers.
Kasich told reporters last month the tax plan will be back this year, although details won’t be known until he unveils the plan and his two-year budget in early February.
The goal of the severance-tax plan is to lower income-tax rates and encourage business growth, especially among small business owners who file company taxes as individuals.
Ohio oil and gas producers say the plan flies in the face of what Kasich is trying to accomplish, and it’s too early to tax a budding industry that has no guarantee it will be profitable enough to generate the revenue estimated by Kasich officials.
The Ohio Oil and Gas Association represents more than 3,000 people and companies exploring, producing and developing oil and natural gas. President Tom Stewart said most members are Ohio small businesses.
Stewart said increased activity in eastern Ohio has been good for counties hit hard by the recession, and Kasich won’t get much support from farm bureaus, chambers of commerce and other businesses in the region.
“Here you have a part of Ohio that’s been an economic desert in decades and now they’ve finally gotten their opportunity, and the first thing that comes out of a Republican governor’s mouth is let’s tax it and redistribute?” Stewart said.
The association has lobbied hard against the tax plan saying it will drive the oil and gas industry away.
Kasich doesn’t buy it, however.
“Every single time I meet with the industry privately, you know what they say? They say we should take this [tax plan] and run. But then they get their lobbyists and all these other people and they obscure the issue,” the governor said.
Ohio last revised its oil and gas tax policy in 2010 under Democratic Gov. Ted Strickland. Oil is taxed at 20 cents per barrel and natural gas is taxed at 3 cents per 1,000 cubic feet, equivalent to 1 percent at today’s price.
The revenue pays for regulation of all oil and gas wells in the state and geographical surveys used by private companies and the government.
Kasich’s plan from last year levies a smaller rate (1.5 percent instead of 4 percent) on wells during the first year of their production, while they recover initial drilling costs. After that, wells drilled horizontally would pay 4 percent on oil and natural-gas liquids.
Horizontal wells use a procedure called hydraulic fracturing, or fracking, to extract oil and gas. Fracking involves injecting sand, water and chemicals underground to fracture the earth, allowing oil and gas to escape through the fractures.
The proposed increase is lower than taxes in neighboring Kentucky, West Virginia and Michigan. Pennsylvania, which shares the Utica and Marcellus shales with Ohio, does not levy a severance tax but drillers pay an impact fee per well, changing with inflation.
In 2012, Pennsylvania drillers paid a $50,000 fee per horizontal well and $10,000 for shallow wells, generating more than $200 million for local governments across the state.