NY DEC Panel Quietly Considers New Shale Gas Drilling Tax

The New York State Department of Environmental Conservation, while holding up a release of new drilling regulations, has “quietly” begun considering different taxation scenarios for when and if shale gas drilling actually begins. Last month, the DEC sent 7 of the 18 members of the Hydraulic Fracturing Advisory Panel three separate charts with scenarios for taxing shale gas production. The members receiving the charts sit on a subcommittee charged with figuring out a way to pay for additional staff and resources that would be needed by the DEC and other state agencies once drilling begins.

Bear in mind under existing New York State law there is already an ad valorem tax (property tax) that will yield a lot of money from shale gas production, but all of that money stays in the local community, going to the town, county and school districts. The DEC Advisory Committee is tasked with figuring out how to grab a piece of the drilling revenue pie in order to fund their own expansion as they ramp up to handle the demands of new drilling activity.

Among the different scenarios, the most lucrative appears to be a severance tax on any gas produced. For a 3 percent tax on natural gas sold at $4 per thousand cubic feet, the DEC estimates it would bring in at least $7.2 million during the first year hydrofracking permits are issued. The revenue would peak at $175.7 million in the fifth year, according to the estimates.

DEC spokeswoman Emily DeSantis said the estimates were "developed for discussion purposes" and that "no decisions have been made on potential funding sources by the panel or DEC."

Companies are eager to tap into the state’s vast gas reserves, but the DEC estimates it would need an average of $20 million in each of the next five years for new staff and equipment.

Other agencies, like the Department of Health and the Public Service Commission, have yet to make their specific resource needs known, but have indicated they would need more staff too.

Aside from a severance tax, a second DEC charts look at an annual "operating fee" for drillers. The proposed fee would be charged each year to gas companies depending on how many wells they are operating at the time.

In the estimate, the DEC assumed a $750 fee for companies that had between two and four wells, increasing incrementally to $10,000 for drillers with 750 or more.

Based on the number of oil and gas wells currently in New York, the fee would generate $1 million annually, according to the estimates, but would likely increase when high-volume hydrofracking begins.

The third chart combines the current permit fees for oil and gas wells, which are based on the depth of the well, with a new charge for gas wells that use more than 300,000 gallons of water for hydrofracking.

The DEC estimates that fee, if enacted, could range from $5,000 to $50,000.

A $5,000 fee combined with current permit fees would generate $688,576 the first year permits are issued, and $11.9 million the fifth year, according to the estimates. A $50,000 fee with a longer average well depth would generate $4 million in year one and $70.4 million in year five.*

*LoHud.com (Nov 7, 2011) – DEC explores hydrofracking fee scenarios