Marcellus Shale Gas Tax Considered


Natural Gas Production in Marcellus Shale
Marcellus Shale area  
Natural gas wells
This map shows wells that extract natural gas from the Marcellus Shale, a rock formation that sits a mile or more under the Appalachian Mountains. It includes wells that produced gas during the most recent production reporting period in each state. Zoom in and click on a well for operator information.

Sources: Energy Information Administration, West Virginia Geological and Economic Survey, Pennsylvania Department of Environmental Protection, Ohio Department of Natural Resources and New York State Department of Environmental Conservation. Credit: Greg Masters/Capital News Service

ANNAPOLIS (November 22, 2011)—Maryland lawmakers are starting to debate how much "severance tax" should be imposed on the natural gas that might be produced from the Marcellus Shale rock formation in Western Maryland.

Though it is not clear when, or even whether, Maryland will allow drilling in the Marcellus Shale using the controversial gas extraction method known as hydraulic fracturing, or "fracking," an advisory commission created by Gov. Martin O'Malley to develop recommendations is already considering potential sources of revenue for the state from natural gas production.

"What we're talking about doing is setting parameters on revenue issues in advance of finalizing the question of whether we drill or not," said Delegate Heather Mizeur, D-Montgomery, who is on the 14-member commission.

The Marcellus Shale cuts across much of northern Appalachia and underlies a portion of Maryland's western panhandle, including all of Garrett County and part of Allegany County.

If their permits are approved, energy companies will drill horizontally into the shale layer and inject a pressurized mix of water, sand and chemicals to release the trapped gas—a process that some say endangers the environment.

Garrett County would impose a 5.5 percent county tax on any extracted gas.

"The question is, if you already have 5.5 (percent), what do you go above that?" said State Sen. George Edwards, R-Allegany & Garrett, who is also on the commission. "My position is that the most I would even consider would be a total of 10 (percent) which would mean 4.5 (percent) for the state."

Mizeur is open to a much higher state-level tax.

"I'm inclined to say, because this is money that would be coming from the industry itself which would be poised to make billions of dollars in the extraction of this resource, that we should be, as a commission, focused on what the state amount should be, whether it's 5, 8, 10, 12, 15 percent, whatever the number ends up being," Mizeur said.

Edwards said the higher the tax, the less money that goes to landowners in the form of leases and gas royalties.

"You got to be careful how much you do it because whatever you put on that end takes away from the owners of the gas, which are mainly local people who've owned these gas rights for years," he said.

E. Marshall Stacy, a Garrett County landowner, said there are more reliable ways than a severance tax for the state to cover the costs of overseeing drilling.

"The severance tax is kind of a crapshoot. Suppose you punch a dry hole. How are you going to pay the inspectors to inspect that operation?" Stacy said.

Stacy is also concerned that money from a state-level tax would end up in the state's General Fund rather than the region where drilling would take place.

But Mizeur said the commission has agreed that "at least a portion, if not all" of the state tax revenue should go into a "superfund" dedicated to environmental and health safety protections in the region where drilling would occur.

"We want to make sure that this isn't just a piggy bank revenue raiser for other budget gaps that we have to fill," Mizeur said.

Another revenue issue being debated is a potential "study fee" of $10 per leased acre on energy companies that have already leased land for gas production in Western Maryland. The revenue would go towards the state's study of Marcellus Shale drilling.

The study fee would accelerate the timeframe for determining whether to drill in Maryland, Mizeur said.

"We're not going to get any money off of severance tax if we don't do drilling, and we're not going to get to a point to determine whether we should do drilling without doing a study. So we have to have upfront money to fund it," Mizeur said.

Mizeur said she is likely to propose legislation in the next session of the Maryland General Assembly for a study fee on the industry.

"I don't support it," Edwards said. "We've never, to my knowledge, asked any other business or industry in this state to put money up to study whatever. That should be the state's responsibility, in my opinion."

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