Many expect Governor Tom Wolf to propose a severance tax on natural gas after he releases his first budget next month, but Wolf isn’t the only one considering a severance tax. Ohio Governor John Kasich has hopped on the tax train and has announced he will push for an increase on the state’s severance tax.
As part of Kasich’s state proposed two-year budget, he plans to seek an increase in Ohio’s severance tax, which is something he has been trying to push through the Legislature. In his recent proposal, Kasich said he would increase the tax for unconventional wells, bringing it to 6.5 percent on oil and gas production, and would charge 4.5 percent per thousand cubic feet on gas and natural gas liquids carried through processing plants. Currently, Ohio’s severance tax sits at 3 cents per thousand cubic feet of natural gas and 20 cents per barrel of oil.
Oil and gas production in Ohio is mostly located on the eastern side of the state, above the Utica shale formation, which produces oil and gas. Select gas companies that are operating in the region now are beginning to tap the shale fields along with their oil and gas operations.
According to the industry and Lou D’Amico, president and executive director of the Pennsylvania Independent Oil & Gas Association, a severance tax on the oil and gas industry in Pennsylvania and Ohio, on top of the impact fee, could make shale fields less profitable to develop and potentially push drillers to other areas of the U.S. D’Amico believes Kasich’s proposal is another example of “total lack of economic savvy in politicians,” and that it will impact Ohio’s economic development.
If his severance tax proposal is approved, Kasich plans to use the revenues to balance out societal costs in areas where there is active drilling, and to offset cuts to income taxes.