Proposed Marcellus Shale Production Tax

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"Showdown looms over proposal to tax Marcellus Shale drillers."

Gas Investing News, Robert Sullivan

Marcellus' nat gasA proposal by Pennsylvania state lawmakers to impose a production tax on drillers operating in the Marcellus Shale has gained momentum in recent weeks—and is being monitored intently by the natural gas industry. Pennsylvania is the only significant natural-gas producing state without a production tax; but with the discovery of massive natural gas deposits in the Marcellus Shale, which are accessible by horizontal drilling, lawmakers are eager for a larger share of the state's mineral wealth.

Pennsylvania's unique geological and regulatory features have drawn ample players to the Marcellus, (estimated to contain 262–489 Tcf recoverable nat gas). If fully exploited, the Marcellus Shale could make PA one of the U.S.' top producers.

PA's loose taxation system has been championed by its supporters as encouraging capital investment in the state. However, the foregone production-tax revenues have until now been nowhere near where they could be in the near future if the region's full potential is unlocked. In the top gas-producing states in the U.S., production taxes typically range from 2%–9.5% of the extracted gas' market value, and Texas annually produces 25x more natural gas than does Pennsylvania.

Proponents cite public support for a production tax, putting forward two bills: 1.) Introduced Monday by State Senate President Joseph Scarnati, proposes a $10,000 'local impact fee' be charged for each well drilled in the Marcellus (projected to generate revenues of $675M over the next five years); and 2.) Tabled by Rep. Kate Harper on April 28, seeks to impose a tax of 1.5% of the market value of extracted gas for a period of 5 years, after which the rate would be bumped up to 5%.

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