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Older gas wells not expected to pay full tax, governor says Saturday, Mar 29, 2008 By Rob Moritz Arkansas News Bureau LITTLE ROCK - With a special session to raise the state severance tax on natural gas just days away, Gov. Mike Beebe said Friday that 12 percent of state's natural gas wells in the Fayetteville Shale play will be taxed at the full rate beginning next year and 52 percent by 2012. The Legislature will convene a special session Monday to consider raising the severance tax to 5 percent of market value at the time of extraction. The proposal does allow exemptions for older wells in the state, mainly in western Arkansas in the Arkoma Basin. Earlier this week, the state Department of Finance and Administration and the state Oil and Gas Commission estimated that most natural gas wells in the state would receive exemptions under the tax hike proposal Beebe negotiated with natural gas companies operating in the state. DF&A said 5 percent of the wells would actually pay the full tax. Beebe said Friday that is only true if the 3,000 to 4,000 older and nearly depleted wells in the Arkoma basin are part of the equation, which he said they were never intended to be. "Those were always exempt at the lower rate because they are lower producing wells," he said. "I think nearly 80 percent of those wells were low producing." The exemptions in the proposal include: -Gas from "high cost" wells, such as those in the Fayetteville Shale play, would be taxed at 1.5 percent for the first three years of production to allow producers to recover their costs, the governor said Friday. Well owners who do not recover their costs within that time frame could apply for a 12-month extension. Projections show those high producing wells in the Fayetteville Shale play area will pay the full tax rate for an average of 15 years "under the generally accepted decline curves," the governor said. "You will get some that are longer and some that are shorter," he said. -High cost wells incapable of producing more than 100 million cubic feet (mcf) of gas per day, such as those in the Arkoma basin, would be classified as "marginal gas wells" and be taxed at a rate of 1.25 percent, as would non-high cost wells incapable of producing more than 250 mcf per day. The tax increase would go into effect Jan. 1, 2009, and would raise $57.1 million in 2009, based on conservative estimates of gas price and production levels from both industry and government officials, Beebe said. The 2009 figure is based upon an $8 gas price assumption, although the current market value of gas is nearer to $9, the governor said. The current severance tax on natural gas, three-tenths of one percent per 1,000 cubic feet of gas is among the lowest in the nation. It hasn't been increased since 1957. ------- The Associated Press contributed to this report |
