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Friday, June 5, 2015

The Utica boom continues as Governor Kasich pushes for a higher severance tax

The Ohio Department of Natural Resource has released its production report for the first quarter of 2015 and falling energy prices have slowed down drilling activity some but have not produced the bust that some predicted. This post will  address that below but first some very good news from the U.S. Energy Information Agency. The Utica has surpassed the Woodford Shale in Oklahoma and will soon pass the Fayetteville Shale in Arkansas. Remember this all started just 5 years ago. Notice that the Marcellus Shale is excluded in the below graph. That's because it is in a super class of its own. Marcellus gas production is roughly equal to the production of the next 4 formations combined.
The Utica Shale experienced the second overall largest production growth with 2.45 Bcf per day in April 2015, up 1.59 Bcf/day from April 2014. The increase was surpassed only by the Marcellus with showed a whopping 15.24 Bcf per day in April 2015 vs. 12.51 Bcf per day in April 2014, up 2.74 Bcf/day. Though the Utica Shale more than doubled in natural gas production over the last year, and just shy of tripling, holding the distinction of largest (by far) percentage increase.

Returning to the ODNR report, both oil and gas production increased sharply but a slow down in permitting activity suggests future production will increase at a slower rate. Another effect of the price dip is drillers are concentrating their resources in areas where drilling is the cheapest. Belmont and Monroe Counties in Southeast Ohio account for nearly half of all Utica Shale wells classified as currently drilling. Together the two counties are the home of 108 of the 223 wells classified as currently drilling and account for 88 of 209 wells permitted so far this year. As for oil, Noble county has the top producer. The Frakes unit in Noble County showed very high oil production. One leg of the well pumped 50,464 barrels of oil during the 90-day period plus over 1.022 Mcf of gas.
With honest John Kasich as governor who needs Saudi Arabia to screw up production. The governor is again pounding the drums for an increase in the severance tax.
“These oil companies, out of state companies, are paying 20 cents on a hundred dollar barrel of oil. That’s unbelievable. We wanted to raise it like 4 or 4.5% - we would have the lowest severance tax in America.”
Gee, Honest John, I thought 2% of $100 was $2. I can see why you have so much trouble coming up with a budget. Out of state companies? Yes, but what about the landowners and which party will actually pay the tax. Out of state companies? Not those same out of state companies that have invested $19 billion and counting in your state when no one else would? Chesapeake Energy alone has created 8,000 good paying jobs. What has Policy Matters Ohio done for you lately?
It's the appalling sense of entitlement, the idea that government should share in an individual's good fortune that I find so vexing. In 2013 I wrote post on Carroll County. It had 550 new millionaires. Harrison County had added another 80 or so and you can bet that there was very little tax avoidance as it was impossible to have tax planning in place. One farmer boasted he had just written the two largest checks he had ever written in his life, one to the IRS and the other to Ohio Dept of Taxation. One would think that would be enough but not according to Kasich's ally in the good fight against individual prosperity, Wendy Patton with the liberal-leaning think tank Policy Matters Ohio. She says it’s important to remember why we have a severance tax.
“It’s a way of recompensing the people of the state of a nation for the loss of that valuable natural resource that can only be taken out of the ground once.”
Wrong Wendy. The people of the state of a nation do not own the valuable resource the landowners do. The reason we have a severance tax is because it's easier to roll a few unsophisticated taxpayers than to enact a broader based tax but you are right. It can only be taken out ground once and the good people who have worked some very marginal land for generations are entitled to spend their own money. Get you head out of your butt. Zanesville ain't Dubai.
Fortunately a majority of state legislators feel as I do. The House did agree to a 2.5% rate in May but it seems to have stalled out.

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