WHEELING, W.Va. — Corky Demarco believes West Virginia’s 5 percent severance tax on oil and natural gas production is one of the main culprits driving the number of Marcellus and Utica shale drilling rigs throughout the state down to 17, compared to the 29 working at this time last year.
Pennsylvania now applies no severance tax on its operations, while Ohio only charges 3 cents per every 1,000 cubic feet of natural gas produced, or 20 cents per barrel of oil produced. Demarco, executive director of the West Virginia Oil and Natural Gas Association, blames the tax for reduced West Virginia drilling, in addition to an overall downturn in the market because of lower commodity prices.
“Ohio and Pennsylvania do not pay as much tax as we do. Plus, we are required to fix the roads that we use,” Demarco said of the bonds the West Virginia Division of Highways requires drillers to post for road usage. “Publicly traded companies are required to maximize their investments.”
When it comes to taxes, Pennsylvania utilizes an impact fee, a $50,000 up-front charge for companies wanting to drill a well. And in Ohio, Gov. John Kasich has proposed increasing the oil severance tax to 6.5 percent and the natural gas severance tax to 4.5 percent.
Oilfield services giant Baker Hughes tracks active rig counts across the globe. The firm shows that while West Virginia’s count dropped from 29 to 17 over the last year, Ohio lost just three rigs, from 40 to 37. Pennsylvania, meanwhile, actually gained a rig over the last year by going from 53 to 54, although the Keystone State’s current share is far less than the 110 rigs drilling there in 2012.
“It is due to lower prices in the short run,” said R. Dennis Xander, president of Buckhannon, W.Va.-based Denex Petroleum, as well as past president of the Independent Oil and Gas Association of West Virginia. “Life will be lousy for small producers like me until at least 2019.”
Demarco and Xander said there is no one particular area of West Virginia that is seeing more of an effect than another from the downturn, although the wet gas area of the Northern Panhandle generally remains busier than other regions.
“There will be a lot of drilling, commencing in 2016 or so, to fill up these pipelines and meet new demand,” Xander said of projects such as the Atlantic Coast Pipeline, Mountain Valley Pipeline, Leach XPress Pipeline and Rover Pipeline.
Tim Greene, a former West Virginia Department of Environmental Protection inspector and the owner of Land and Mineral Management of Appalachia, said February is normally a slow time of the year for drilling because of cold weather. Still, he is not sure why the state is seeing such a sharp drop from 2014 to this year.
“From Clarksburg to Parkersburg to Wheeling, everybody is cutting back. People are still waiting on the pipeline infrastructure to get the gas out of here,” Greene said. “It doesn’t make sense right now to just drill, drill, drill.”
Throughout the nation, there are 502 fewer rigs drilling now compared to this time last year, Baker Hughes shows, which likely can be attributed to much lower natural gas and oil prices.
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