Pennsylvania Weighs Levy on Natural-Gas Wells


Lawmakers in Pennsylvania are considering raising much-needed revenue through a fee on every natural-gas well drilled in the massive Marcellus Shale formation beneath the state.

Pennsylvania is currently the only gas-producing state that doesn't assess a fee or tax on companies extracting the resource. Debate on the issue comes as the state is grappling with a $4.2 billion budget shortfall and worries about the environmental impact of drilling.

Republican state Sen. Joe Scarnati is expected to introduce a bill within the next few days that would require companies to pay a one-time $10,000 fee on each well, with the potential for added fees on high-production wells. The plan would generate an estimated $121.2 million in the first two years.

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Unlike prior proposals by the Democratic minority in the state House and Senate, several observers say the local-impact fee plan has a good chance of winning industry support and ultimately being adopted.

"It's certainly a concept that the industry is willing to take a look at," said Patrick Creighton, a spokesman for the Marcellus Shale Coalition, an industry trade group.

Kevin Harley, a spokesman for GOP Gov. Tom Corbett, said the governor was open to such a fee, but wanted more information from a commission he appointed to examine drilling issues. "The Marcellus Shale can be a cornerstone to the economic development of Pennsylvania," Mr. Harley said. "He wants to develop it in an economically and environmentally sound fashion."

Mr. Corbett, who was elected last year with strong gas-industry support, has opposed a so-called severance tax on gas wells, saying such a tax would turn away drillers and jobs. Other states, including Texas, Oklahoma, Arkansas and West Virginia, have severance taxes based on the value or volume of gas produced at a well site.

A majority of Pennsylvanians favor some kind of tax to help balance the state budget. An April 27 poll by Quinnipiac University in Hamden, Conn., found that Pennsylvania residents supported a tax on companies drilling for gas in the Marcellus "to help balance the state budget" by a 69%-22% margin. The poll of 1,366 people, conducted between April 19-25, had a margin of error of 2.7%.

The Marcellus Shale formation, which stretches beneath parts of Ohio, Pennsylvania, West Virginia and New York, could be the largest shale-gas deposit in the world. Marcellus-related companies already employ 141,000 people in Pennsylvania, or 2.4% of the state's work force, according to the Pennsylvania Department of Labor and Industry. An industry-backed study from Penn State University last year said the industry could add 200,000 more jobs in the next ten years.

Democratic Sen. Jay Costa called the Scarnati proposal "a good starting point," but said he would like to see more revenue generated.

Matt Pitzarella, a spokesman for Range Resources Corp., which says it has invested more than $2 billion in the state since 2004 and has 244 wells there, said industry officials and conservation groups met with Mr. Scarnati on a weekly basis last year to work through plans for instituting a fee. "This isn't something that's been cooked up in a vacuum," he said.

Some labor and environmental groups oppose the Scarnati fee and continue to argue for a tax based on production, which they say would generate more money for Pennsylvania.

"We think the tax rate could be higher without having any impact on the level of drilling in the state," said Sharon Ward, director of the Harrisburg-based Pennsylvania Budget and Policy Center, a liberal think tank, which said it gets 10% of its funding from labor unions.

Kenny DuBose, a mineral-rights consultant in Houston, said most states have severance taxes, and many have additional local fees. Texas and Mississippi, for example, levy separate fees to help counties with oilfield cleanup and repairing roads and bridges, he said.

Drillers also pay property taxes on gas reserves and sales tax on equipment in Texas, Mr. DuBose said, but they are currently exempted from such taxes under Pennsylvania law.

Mr. Harley, the governor's spokesman, said companies engaged in drilling-related activities paid $238.4 million in corporate and other taxes to the state in the first quarter.

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