Midday Must Reads: Are We Getting What We Bargained for with the Gas Industry?

Stealthily included in the flurry of bills passed as part of the Pennsylvania budget is a provision that puts a moratorium of up to six years on gas drilling in parts of southeastern Pennsylvania. Columnist Walter Brasch, writing in the Hazelton Standard Speaker, had a few questions for the lawmakers who approved that concept.

Why do you support a state law that discriminates against the rural counties, while you support a special exemption that protects the health and welfare of the urban and suburban counties that have many of the state's most powerful and wealthiest constituents, including the head of the Department of Environmental Protection and the lieutenant governor?

Brasch notes comments from Representative Jesse White of Washington County who asks where was the caution when the Legislature was debate the Marcellus Shale package just a few months ago. A good question.

"Where was our study?" demanded state Rep. Jesse White, D-Washington, who actively opposes Act 13 and has been trying to get responsibility on the part of the industry and the state Legislature regarding drilling in the Marcellus and Utica shales. "We were here four months ago (when Act 13 was passed) under the guise of, we had to have uniformity, we had to have consistency, we needed to be fair," said White, "and now, four months later, we're saying, 'Maybe, for whatever reason, we're going to give a few people a pass.'"

What we do know is that gas drillers are not filling up state tax coffers. Bloomberg News has an interesting article showing how oil companies reduce their federal tax bills by using certain tax code loopholes (such as the ability to write off drilling expenses to help ease the financial impact of dry holes, even though there are few dry holes these days). This, in turn, leads to less tax revenue for Pennsylvania.

Chesapeake Energy Corp. made $5.5 billion in pretax profits since its founding more than two decades ago. So far, the second-largest U.S. natural-gas producer has paid income taxes on almost none of it.

Oklahoma City-based Chesapeake paid $53 million over its 23-year history, or about 1 percent of the cumulative pretax profits during that period, data compiled by Bloomberg show. That's less than half of CEO Aubrey McClendon's compensation in 2008 alone.

The company and other U.S. oil and gas producers can thank a century-old rule that allows them to postpone income taxes in recognition of the inherent risk of drilling wells that may turn out to be dry. The break may be outdated for companies such as Chesapeake, which, thanks to advances in technology, struck oil or gas in 99.6 percent of its wells last year ...

President Barack Obama has repeatedly sought, without success, to repeal the drilling-costs benefit in annual budget proposals. In its most recent plan, the White House estimated this year that the change would add $3.5 billion to federal coffers in 2013 and $13.9 billion over 10 years ...

While Chesapeake is the biggest U.S. oil and gas producer with such low tax payments, it's far from alone. Range Resources Corp. paid income taxes of about 0.4 percent of pretax income over the past decade, Bloomberg data show, and EQT Corp. paid 5.3 percent.

Lastly, The Associated Press details how much taxes Pennsylvania’s 11 casinos are collecting for the state from slot machines.  Like them or not, we can easily measure how much tax these companies directly generate - unlike the gas drillers.

Gross revenue from slot machines rose 5.5 percent for the fiscal year that just ended, according to state figures, with tax revenue generated by casinos up 4.8 percent to $1.3 billion. The state's 11 casinos brought in gross slots revenue of nearly $2.5 billion for the fiscal year that ended June 30, according to the Pennsylvania Gaming Control Board.

Pennsylvania taxes gross revenue from slot machines at about 55 percent, generating $1.3 billion last fiscal year, an increase of about 4.8 percent from the year before.


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