By Marc Kovac
Industry representatives voiced their support Wednesday for House Republicans’ plan to revamp tax rates on oil and gas produced in eastern Ohio’s emerging shale oilfields.
They repeated many of the same arguments they’ve made over the past two years: that a previous plan offered by Gov. John Kasich’s administration would stifle horizontal hydraulic fracturing development at a time when companies are still trying to determine the most productive fracking areas.
They said the new legislation, House Bill 375, offered a “sensible modification” to Ohio’s oil and gas tax structure, treating owners of conventional and horizontal wells fairly while supporting regulatory efforts.
“HB 375 will provide much-needed clarity for oil and gas producers who have already heavily invested capital in this state and plan to invest billions more to explore the state’s Utica Shale reservoir,” Thomas Stewart, executive vice president of the Ohio Oil and Gas Association, told members of the Ohio House’s Ways and Means Committee.
He added, “HB 375 provides much-needed tax fairness and protection to eastern Ohio landowners who, in many cases, have been waiting all too long for opportunity to come their way.”
Wednesday marked the second hearing for the proposed law changes, with testimony from individuals and groups that support the new approach. Opponents and interested parties will offer comments during future hearings.
House Bill 375 would set lower tax rates on existing conventional wells and increasing rates on those drilled horizontally, with excess proceeds devoted to plugging abandoned wells and potentially cutting income tax rates.
Horizontal wells would be subject to a 1 percent tax on gross receipts over the first five years of production, then 2 percent thereafter as long as production remains above certain levels. The lower rate during the initial years will allow producers to recoup their costs.
Proceeds from the increased severance tax will first go to state regulators overseeing the fracking industry, with extra collections used to cap orphan oil and gas wells and for potential income tax rate cuts.
HB 375 also includes additional tax breaks for well owners.
The proposal is much revamped from the severance tax increase proposed by Kasich over the past two years. The governor is not endorsing HB 375, saying instead that his administration would work with Republican lawmakers on the legislation.
During Wednesday’s committee hearing, Rep. Mike Foley, D-Cleveland, pressed Stewart on whether companies would really take their oil and gas production efforts to other states if Ohio increased its severance tax rates.
“My contention is that this tax rate that’s being offered is too low,” Foley said. “We’ve got more valuable gas or oil coming out than other states do. The investment’s going to come here whether the tax rate is 1 and 2 percent or 4 or 5 percent.”
But Stewart said there are 29 active shale oil production areas across the country, and companies are focusing their efforts where they can get the best return on their investment.
Eastern Ohio’s oil and gas production ultimately will boost the state’s economy more than a big hike in related tax rates, he said.
“Ohio stands to gain more by the production of oil and gas, and doing anything to suppress production would cause a reduction in supply to consumers and a price increase,” Stewart said. “The state is better served from the economic activity generated from the availability of energy than a bigger severance tax.”