Arkansas Natural Gas Big State Revenue Issue

LITTLE ROCK - The Fayetteville Shale play, a rock formation encompassing multiple counties in North-Central Arkansas and holding vast reservoirs of natural gas, is at the center of the state's political, economical and environmental discussions. A 2008 study by the University of Arkansas estimated the shale play would generate $17.9 billion and more than 11,000 jobs for the state's economy through 2012. This weekly report notes highlights from activities in, and matters concerning, the Fayetteville Shale play.

Beebe, industry agree to severance tax increase, legislators question proposal

LITTLE ROCK - Gov. Mike Beebe said Tuesday he did not budge in five months of negotiations with natural gas industry officials that resulted in a tentative agreement to raise the state severance tax for the first time in more than 50 years.

The pact would generate about $57 million next year if the Legislature approved it in a special session the governor said he wants to call by the end of the month if lawmakers appear inclined to provide the supermajority votes in both chambers needed for approval.

The proposal would raise the severance tax, at three-tenths of 1 cent per 1,000 cubic feet of gas among the lowest in the nation, to 5 percent of market value at the time of extraction.

Gas from "high cost" wells would be taxed at 1.5 percent for the first three years of production to allow producers to recover their costs, Beebe said. Well owners who did not recover their costs within that time frame could apply for a 12-month extension.
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High cost wells incapable of producing more than 100 million cubic feet (mcf) of gas per day 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.

All other wells producing commercial quantities would be taxed at a 1.5 percent rate for the first two years of production, Beebe said.

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 "and appears to be going up all the time," Beebe said.

Projections show tax proceeds peaking at $101.6 million in 2015, Beebe said.

Of the revenue generated, 95 percent would go to road improvements. Of that, 70 percent would go for state highways, and counties and cities would receive 15 percent each, Beebe said.

Updated study: Fayetteville Shale's economic impact $17.9 billion through '12

LITTLE ROCK - Natural gas drilling in the eight-county Fayetteville Shale play will produce a $17.9 billion economic benefit to the state through 2012, an updated University of Arkansas study released Thursday projects.

The study by the UA Center for Business and Economic Research also concluded that a severance tax rate of 5 percent of market value without reductions or exemptions would negatively affect the projection by 13 percent.

Calculations show economic output in 2007 alone was $2.6 billion, 62.5 percent higher than the $1.6 billion estimated for last year in the first study. The study also found that drilling and related activities accounted for 9,533 jobs in 2007, 43.1 percent more than originally anticipated and close to the 10,000 jobs the original study projected would be created through 2008.

More than 11,000 jobs will be tied to the industry every year through 2012, the new study found.

More than 80 companies with activities in the shale play provided information for the $28,000 study, paid for by Arkansas Land and Exploration LLC, Chesapeake Energy Corp., Petrohawk Energy Corp. and Southwestern Energy Co. The first study was paid for by Southwestern.

According to survey respondents, an average price of $6.21 per million British thermal units (MMBTU) is necessary for the forecasted investments to be made, Deck said.