Ohio gas and oil drilling up during last quarter of 2014, as governor again pursues tax hike

Energy Associated Press

Oil production has more than doubled and production of natural gas has tripled in Ohio in one year, bolstering arguments by the administration of Gov. John Kasich that the industry is thriving enough to sustain a tax increase.

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Statistics released Wednesday by the Ohio Department of Natural Resources showed more than 3.5 million barrels of oil and 164 billion cubic feet of natural gas were produced during the last three months of 2014. During the same quarter in 2013, Ohio wells produced 1.4 million barrels of oil and 43 billion cubic feet of natural gas.

The increase was fueled by a building boom of wells.

During this week's State of the State address, the Republican governor dismissed claims by the oil-and-gas industry that they'd be devastated by his proposed tax increase.

"The prosperity created by our oil and gas deposits can be great not just for shale country. This is not just for part of Ohio but for all of Ohio because it makes possible the income tax cuts that provide an economic boost statewide," he told the crowd Tuesday.

"I'm disappointed by those who say the severance tax reform will kill the industry. That's a joke. That's a big fat joke because I've talked to them in private. And I'll tell you what: Our severance tax will still be competitive with our energy-rich states."

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Kasich's $72.3 billion, two-year state operating budget calls for a fixed rate on crude oil and natural gas of 6.5 percent at the wellhead, and a lower rate of 4.5 percent for natural gas and natural gas liquids sold downstream.

To illustrate the impact of the tax, Kasich held up two dimes during the speech, representing the 20 cents on the barrel of oil the increase represents.

The proposal marks the third time he has sought a severance tax increase — and the latest attempt was again met with resistance. Pushback from the well-funded petroleum industry has been strenuous.

Chris Zeigler, executive director of the Ohio arm of the American Petroleum Institute, said the proposal puts oil and gas production "at serious risk."

"Our members develop energy resources across the country and the globe and they make development decisions based on the most favorable local economic conditions," he said. "Unfortunately, the governor's latest proposal to increase taxes on our industry does not account for the current economic environment that is directly impacting oil and natural gas developers in Ohio."

Wednesday's report showed 779 wells produced at least some oil or gas out of the 828 wells drilled in Ohio's shale formations toward the end of 2014. That's compared to the 352 wells producing oil and natural gas in the same period a year before.

Forty-seven wells reported no production in the fourth quarter of 2014 because they are waiting on pipeline infrastructure.