38
Gas & Oil
April 2013 Edition - Dix Communications
www.OhioGO.com
10 things G
Mark Kovac Dix Communications
ov. John Kasich has made no secret about his desire to increase taxes on oil and gas produced in eastern Ohio’s growing oilfields, saying the entire state should benefit from the valuable resources in underground shale formations. But Statehouse Democrats and some Republicans remain skeptical of the governor’s plan, voicing a desire to use the increased tax collections to help local governments and schools or concerns that a tax hike could hinder future fracking-related economic de-
velopment. Proponents and opponents are in the midst of a debate on the issue, via hearings on Kasich’s biennial budget plan. Here are 10 things you should know about oil and gas taxes and what the governor is proposing: 1. Severance: The severance tax is so named because filers “extract, or sever, certain natural resources from the soil and waters of Ohio,” according to an explanation by the Ohio Department of Taxation. Last year, there were about 1,300 individuals or business entities that filed severance taxes, said Gary Gudmundson, spokesman for the taxation department. Of those, 984 focused solely on oil or natural gas. 2. The Rates: According to the Department of Taxation, severance taxes are levied based on the weight or volume of resources extracted from the ground. Under current rates, filers pay 10 cents per barrel of oil and 2.5 cents per thousand cubic feet of natural gas produced. Production valued at less than $1,000 is exempt if used on the same property where it is extracted, according to the taxation department. Upward of $10.2 million in total severance taxes were paid in the state in fiscal 2012. The total included more than $2 million in natural gas payments and about $467,000 in oil payments. 3. Where the Money Goes: According to the Ohio Department of Taxation, 90 percent of oil and gas severance taxes currently are directed to the state’s unreclaimed lands fund. It’s used to reclaim “land, public or private, affected by mining or controlling mining drainage,” according to Ohio Revised Code. The remaining 10 percent goes to the state’s geological mapping fund for “field, laboratory and administrative tasks to map and make public reports on the geology, geologic hazards and energy and mineral resources of the state.” 4. Kasich’s Plan: Under the governor’s proposal, rates would
about the ‘fracking tax’
remain unchanged or would be reduced or eliminated for lowvolume producers with vertical wells. Increased rates would be enacted for higher-volume, horizontal wells, the focus of oilfield activities in eastern Ohio, with the expanding use of horizontal hydraulic fracturing, or fracking. According to Tax Commissioner Joe Testa, owners of high-volume horizontal wells would be taxed at a rate of 1 percent for gas and 4 percent for oil, natural gas liquids and condensate. The latter would be taxed at a lower 1.5 percent rate during the first year of production to enable producers to recoup their drilling costs. Additionally, “To provide immediate revenue to local governments, the owners of high-volume horizontal wells will provide a no-interest impact loan of $25,000 per well when the permit is obtained,” Testa told the House’s finance committee last week. “This will aid local governments during the period of drilling when there is increased stress on infrastructure.” The proceeds from collections on horizontal wells would go to the state’s general revenue fund. The proceeds from conventional vertical wells would continue to be directed to unreclaimed lands Continued on pg. 46
ENGINEERING & AUTOMATION
• • • • • • • • • •
Facility Engineering Station & Unit Automation Turnkey (EPC) Solutions Project Management Material Procurement Horsepower Selection Feed Studies Measurement Liquid Handling 2D & 3D Drafting & Design
Experts in Natural Gas Basic Systems, Inc. (740) 432-3001 (office) www.basic-systems.com 10128177