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Updated study: Fayetteville Shale's economic impact $17.9 billion through '12 Friday, Mar 14, 2008 By Jason Wiest Arkansas News Bureau LITTLE ROCK - Natural gas drilling in the eight-county Fayetteville Shale play will produce a $17.9 billion economic benefit to the state through 2012, an updated University of Arkansas study released Thursday projects. The study by the UA Center for Business and Economic Research also concluded that a severance tax rate of 5 percent of market value without reductions or exemptions would negatively affect the projection by 13 percent. On Wednesday, Gov. Mike Beebe unveiled a plan, negotiated with natural gas company executives, to raise the severance tax rate at 5 percent of market value, with some temporary reductions. The current rate of one-tenth of 1 cent per 1,000 cubic feet has been in place since 1957 and is among the lowest rates in the nation. The study released Thursday was the university's second measuring the economic impact of Fayetteville Shale exploration. The initial study, released in 2006, projected the impact to be $5.5 billion from 2005 through this year. "We used the best estimates we could get at the time, but even just a casual glance at the newspapers and public announcements that some of the big operators had made showed that our inputs, and hence our final numbers, were likely to be well understated," research center director Kathy Deck at a news conference at UA System headquarters here. They were. Looking back, calculations show economic output in 2007 alone was $2.6 billion, 62.5 percent higher than the $1.6 billion estimated for last year in the first study, Deck said. "It's very comparable to agriculture, for example, in this state in terms of output," Deck said. The study also found that drilling and related activities accounted for 9,533 jobs in 2007, 43.1 percent more than originally anticipated and close to the 10,000 jobs the original study projected would be created through 2008. "This made the difference between positive and negative (employment) growth in the state," last year, Deck said. More than 11,000 jobs will be tied to the industry every year through 2012, the new study found. More than 80 companies with activities in the shale play provided information for the $28,000 study, paid for by Arkansas Land and Exploration LLC, Chesapeake Energy Corp., Petrohawk Energy Corp. and Southwestern Energy Co. The first study was paid for by Southwestern. The play's impact through 2012 would drop to $15.5 billion if a severance tax of 5 percent of market value were in place, the study found, though Deck said the affect likely would be less with the reductions and exemptions Beebe has proposed. Beebe wants to call a special session by the end of March to enact his proposed increase legislatively to provide a new revenue stream for road improvements. Doing so would require a three-fourths vote in both the House and Senate. Opponents of raising the severance tax counter that the state should choose good jobs over a tax hike, arguing that an increase would drive away a thriving industry. Beebe spokesman Matt DeCample said Thursday increasing the severance tax would not cost jobs. "The bottom line is, everything that we've heard from the companies and from market observers, we have not seen any indication that an increase in the severance tax will lead to any reduction in jobs connected to Arkansas natural gas exploration," DeCample said. "We see again and again how successful and profitable these ventures have been for these companies." Exploration companies were not asked how they would be affected by exemptions and reductions, Deck noted. Last year, the state reaped $54.6 million in tax revenues from operations in the Fayetteville Shale play. Those figures included income taxes from employment, sales taxes purchases made with both paychecks and royalty payments, and other categories, the study found. More than $8 million in estimated local taxes were tied to Fayetteville Shale activity in 2007. "We see substantial growth in retail sales," said Brad Lacy, president of both the Conway Chamber of Commerce and Conway Development Corp. "December 2007 was the largest month we've ever had," Lacy said, noting 57 of the past 58 months have shown increases in sales tax collections in yearly comparisons. The study estimated that between 2008 and 2012, total state tax revenues would be $1.8 billion, resulting from direct, indirect and induced effects of the play's activities. Local sales and property taxes for the same period a projected at over $150 million. Those numbers are not guaranteed, however, Deck said. According to survey respondents, an average price of $6.21 per million British thermal units (MMBTU) is necessary for the forecasted investments to be made, Deck said. A sustained decrease of $1 from that level could cause a 47 percent decrease in investment in the play, the study found. A sustained increase of $1, however, could cause average additional investment of 10 percent. Currently, gas prices are significantly higher, with futures prices in the $9 to $10 range, Deck said. "We've seen them vary substantially over the time period that the Fayetteville Shale has been going," she said. "We saw them drop down close to that $6 level in 2006." Industry officials said the study was a fair snapshot of activity in the play. "We knew it was going to be more than that $5.5 billion that they projected in 2005," Chesapeake spokesman Mark Raines said. "The numbers just tell us that, in large part, this industry is driving the state's economy." The study's numbers exclude the economic impact made from other oil and natural gas activities in other parts of the state, Southwestern spokesman John Thaeler said, noting that the company has planned to invest about $132 million in the Arkoma Basin near Fort Smith this year. "The other activity in Arkansas - people have kind of forgotten about it because of the Fayetteville Shale, but that activity has grown as well," he said. |
