Finally Some Common Sense About (Not) Taxing Marcellus Production in Pennsylvania

Pennsylvania Rep. Dave Reed (Republican, Indiana, PA) “gets it” when it comes to drilling in the Marcellus. Gov. Ed “fast Eddie” Rendell (Democrat), wants to tax drilling in the Marcellus. According to the Indiana Gazette (PA), fast Eddie’s plan calls for:

The tax would claim 5 percent of the market value of gas extracted at the well head. On top of that, gas producers also would pay 4.7 cents per 1,000 cubic feet of extracted gas. The tax applies to all natural gas production in the state, regardless of whether it comes from a conventional well or a Marcellus well.

The governor’s budget office projects that over the next five fiscal years, the tax could generate $1.8 billion, all of which would flow into the state’s general fund.

The Gov won’t be able to leave his grubby hands in his own pockets. He’s coming for your money landowners!

But Rep. Reed has a different idea. Rather than tax Marcellus production, how about the state lease it’s own land and raise money that way?

Reed, meanwhile, is proposing to open 130,000 acres of forestland per year over three years, leasing tracts to the highest bidders. His plan, which is intended specifically for Marcellus shale drilling, sets a $2,000-per-acre minimum bid and assesses a 16 percent royalty on the gas produced.

Most of the proceeds – 80 percent – would be directed to the general fund, but 5 percent would be set aside for the conservation districts.

The rest would be divided between two pots, one benefiting the counties and municipalities that are home to conventional oil or gas wells and the other benefiting counties and municipalities that are home to Marcellus shale wells.

Assuming all the land is leased at the minimum rate, his plan would raise at least $780 million, which is exclusive of the royalty payments the state would receive.

Reed said that of the two plans, his is better because it creates a new revenue stream and jobs without punishing an emerging industry.

Instead of punishing a new industry, Reed proposes to help it along. Finally a government official with some common sense! And that initial $780 million is sans royalties. When the royalties start coming in, the state stands to make far more than fast Eddie’s $1.8 billion.

Of course the eco-nuts are out in force against Reed’s plan…groups like PennFuture and the Sierra Club. They have an irrational and unrealistic view of environmental issues and should be ignored. Don’t buy their “sky is falling” baloney.

Perhaps one of the most interesting aspects of Reed’s plan is the proposed lease terms: $2,000 per acre and a 16% royalty. That’s in the neighborhood of other deals MDN has heard about, and good measuring stick for landowners and landowner groups as they continue to negotiate their own deals.

Read the full article: Competing plans for Pennsylvania gas revenue under scrutiny