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API-PA remarks on tax severance study

Hydrocarbon Engineering,

Below are extracts from a briefing given by Stephanie Catarino Wissman, Executive Director, API-PA on the new study looking at the severance tax study for Pennsylvania.

“Everyone knows energy is important to our daily lives. And here in an energy producing state like Pennsylvania, we understand how energy underpins the entire economy and is essential to our quality of life. The American public is looking to capitalise on the opportunity we face at this moment to use our nation’s energy portfolio to help the economy, increase government revenues, decrease costs for consumers and create jobs.

“In fact, earlier this week API-PA released a Sonecon study showing that returns on state pension funds in Pennsylvania from investments in oil and natural gas companies continue to provide strong earnings for public pension retirees, including teachers, fire fighters and police officers. In fact, on average, US$1 investing in oil and natural gas stocks in 2005 was worth US$2.28 in 2013. By contracts, US$1 invested in all other assets over the same period was worth US$1.79. Over all, Sonecon’s report examined the top two public pension funds in 17 states, which collectively cover nearly half of all workers in the US who participate in state and local government pension plans.”

“And it’s not just public employee pension holders. Millions of Americans with a 401k, mutual fund, or pension also rely on the income and capital growth these companies provide for their retirement. The industry is a valuable asset to the tens of millions of Americans who own these funds, as well as the communities in which they live and work.”

Beyond the nest egg

“The US oil and natural gas industry delivers hundreds of millions of dollars to the Commonwealth. The current local impact tax, which is collected from every shale drilling site in the state, has distributed more than US$630 million to communities since 2012, including more than US$224 million in just 2014. That’s on top of over US$2.1 billion in state and local taxes already generated by our industry.

“As recorded by the Governor’s Department of Environmental Protection, Pennsylvania continues to shatter the commonwealth’s records in natural gas production, producing more natural gas each year. In 2014 Pennsylvania was among the top two states in the nation for natural gas production with 4 trillion ft3 of natural gas produced, a 30% increase over 2013’s record production numbers.

“Natural gas development supports hundreds of thousands of jobs in Pennsylvania, contributes US$34.7 billion annually to the state economy and has boosted profits in more than 1300 businesses of all sizes up and down the energy supply chain. But Gov. Wolf wants more, saying the state is ‘getting a bad deal’. Yet, the energy tax hike he proposes conjures up the fable about a golden egg laying goose. Higher energy taxes could put a damper on energy activity, and the state could be worse off.”

What next

“During just the first year of a new severance tax, this study estimates that 113 fewer horizontal wells would be drilled. These production losses would reduce the number of wells drilled by an estimated 1364 from 2016 to 2025 leading to a cumulative drilling investment loss of US$11.5 billion. These investment and production losses also lead to cumulative losses of over US$20 billion in value added or gross state product to the Pennsylvania economy from 2016 – 2025.

“In 2016 alone, more than 6000 job losses could occur, not just in the oil and gas sector but also across a range of industries that are part of the gas industry supply chain and from service industries dependent upon spending by workers employed in these industries. By 2025, supported employment in the state could drop by nearly 18 000 relative to projected levels without the tax. The relatively high paying construction and oil and gas sectors would be hardest hit.

“Overall, this study confirms common sense and economic intuition…Safe, responsible natural gas development has been good for the state economy, good for local economies and good for Pennsylvanians. We want to keep it that way.”

Pennsylvania jobs matter

“State lawmakers should reject the severance tax so that the benefits of energy development continue to flow. More growth means more jobs and more revenue. Higher taxes mean driving development away from Pennsylvania, costing jobs and the loss of revenue that can pay for education, transportation, healthcare, and other state programs. Let’s end the conversation about any new taxes. The system is working for Pennsylvanians.”

Edited from speech by Claira Lloyd

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