Friday, March 9, 2012 at 3:30PM Ohio prepares shale regulatory proposals
Ohio is home to the largest swath of the red-hot Utica shale play, an area rich with the oil and gas liquids operators are increasingly chasing amid low North American natural gas prices.
Kasich, a Republican, said his plan, which his administration has been working on “for 16 or 17 months”, will “help the industry be successful but at the same time protect the interests of Ohio and protect the interests of the environment”.
“We’re getting ourselves in a position where we don’t have to choose between good environmental policy and job creation,” he told reporters at the IHS CeraWeek conference on Wednesday in Houston.
He said his proposals, set to be unveiled next week, will require companies to disclose the chemicals used during hydraulic fracturing and impose tighter rules on gathering lines and high-pressure pipelines.
But what will undoubtedly irk companies rushing in to tap Ohio’s suddenly bountiful hydrocarbon resources is Kasich’s plan to raise the taxes paid on unconventional oil and gas produced in the state.
Kasich declined to offer any specifics on his proposals, but indicated that producers would be paying more than the $0.20 per barrel of oil and $0.03 per thousand cubic of gas they currently pay in Ohio.
“Right now, oil is trading at (around) $107. Twenty cents on a $107 barrel of oil? You’ve got to be kidding me. You think that’s sustainable or fair or reasonable? It’s not,” Kasich said.
“We would never locate these taxes to a point where we think it would create barriers (for industry), but let me also tell you that there are people I know in industry… when they pay zero, they want to continue to pay zero,” he continued.
“That’s not acceptable in the state, and I told the industry clearly that our plan is fair and it will create long-term stability in the state.”
In places like Texas and Oklahoma, severance taxes are above 7% of what operators produce, Kasich said, adding that his plan will also “recognise the current low price of natural gas”.
According to the Cleveland Plain-Dealer, which reviewed a leaked copy of the proposals, most of the tax hikes would be on companies producing from unconventional oil and gas wells, with rates on conventional producers staying about the same.
Wells that are fracked will be taxed at 1.5% of annual sales for companies in their first year. That rate would rise to 4% of gross sales in subsequent years, the newspaper reported.
For gas production, companies that produce less than 10 Mcf per day through traditional wells would no longer pay a tax. Those producing more than that would pay a 1% tax, down from the current rate of 3%, the newspaper said.
All unconventional gas would be taxed at 1% regardless of the amount produced, according to the newspaper. Natural gas liquids would reportedly be taxed at 1.5% in the first year and 4% after that.
Kasich acknowledged that the industry would likely “hire a bunch of lobbyists” to fight the tax hike, but he was not at all worried that the changes would discourage development.
A spokesman for the American Petroleum Institute, an industry lobby, said the group did not yet have a position on the proposals "but we will take a look at the plan when it’s released and examine what it could mean for production in Ohio and the jobs and government revenue that go along with it".
Kasich said he was wary of the federal government getting involved in environmental regulation, calling current federal rules “old-fashioned and outdated”.
He added that Ohio’s proposed rules might even work as a model for federal regulators as some of the proposals are “more forward-leaning” than where the US currently stands.
“I don’t want the federal government in the middle of this, but I’m willing to work with them,” he said.
He also said Ohio has “learned a lot from mistakes" made in other states like Pennsylvania.
“In the beginning, frankly, Pennsylvania didn’t get it right and they stumbled along, and they continue to stumble along,” he said.
When asked if there was anything about Pennsylvania’s regulatory process that he’d like to avoid, he answered: “Yeah. Confusion.”
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