A coalition of natural gas drillers in Pennsylvania is proposing the General Assembly adopt a tiered severance tax rate, which would result in lower rates for newer and lower producing wells. The tired system would help the drillers stay competitive with other states, industry officials say.  

“Most other states that have a mature gas drilling industry set it up this way,” said Terry Bossert, Vice President of Government Affairs for Chief Oil & Gas.“It encourages more exploration and production.”  

Governor Rendell and legislative leaders agreed to enact a severance tax by October 1, 2010 as part of the 2010-11 budget deal. The Governor’s proposal copies West Virginia where there is an effective 6.2 percent rate on all wells.  

Under the proposal from the Marcellus Shale Coalition, wells that go to 5,000 feet or more below the surface to reach deep gas pockets would be taxed at 1.5 percent of market value of gas produced for the first five years. After five years, the gas would be taxes at a five percent rate.  

Wells that produce less than 90,000 cubic feet of gas per day in a month would be exempt from taxes.  

The Coalition is also looking for a pooling law that allows drillers to pay a landowner whose property is contiguous to property being drilled the market rate for leasing and royalties, even though the owner hasn’t signed a lease agreement. And the Coalition wants lawmakers to declare drilling a "use by right" in local zoning ordinances. That means drilling would be allowed, without the need for a major review by a local government, as long as it meets the standards specified in an ordinance.  

Bossert said even though the drillers would like to see the ‘pooling’ and ‘zoning’ laws, it would be wrong to characterize it all as a package deal  

“We’re not even sure the severance tax will be enacted by October 1, must less the other legislation,” Bossert said.