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Natural Gas Severance Tax Collections 150 Times Larger

2 min read

Development of the Fayetteville Shale Play, and especially the damage that heavy drilling equipment caused to sleepy county roadways, provided the political cover needed to raise Arkansas’ severance tax on natural gas for the first time in more than 50 years.

Since the middle of the 20th century, natural gas extracted from beneath Arkansas had been taxed at three-tenths of a cent per MCF (thousand cubic feet), regardless of the value of the gas.

In the fiscal year that ended in June 2004, just before the first wells were fracked in the shale of north-central Arkansas, that severance tax produced barely a half-million dollars. Four years later, it was still generating less than $1 million for the state government.

In March 2008, with drilling at a fever pitch, Gov. Mike Beebe called a special legislative session that, with grudging support of the industry, produced a new severance tax rate that tops out at 5 percent on net proceeds from the sale of gas. The tax is lower on new wells — which, it should be noted, are the most productive — and on low-producing wells.

The higher tax began to be collected in January 2009, midway through the state’s 2009 fiscal year, and produced $11.2 million. The next year, almost $45 million.

In the most recent fiscal year, the severance tax collected jumped to $77.3 million, a one-year increase of more than 50 percent.

There’s a simple reason for that, according to Kelly Robbins, executive vice president of the Arkansas Independent Producers & Royalty Owners: Wells drilled at the peak are now no longer classified as new and are now being taxed as the full 5 percent rate. Plus, he noted, the market value of natural gas has been on the rise.

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