Penn. Gov finds natgas drillers cool to tax idea

Thu Mar 25, 2010 5:49pm EDT

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* Penn. Gov. says industry won't discuss tax proposal

* Governor says industry losing public opinion battle

By Ed Stoddard

DALLAS, March 25 (Reuters) - Pennsylvania Governor Edward Rendell told an energy conference on Thursday that he invited energy companies to discuss his proposed tax on drilling in the natural gas-rich Marcellus Shale, but got few takers.

In his 2010 budget plan unveiled in February, Rendell proposed taxing companies that extract natural gas from the Marcellus Shale. A tax could generate hundreds of millions of dollars in revenue for the cash-strapped state.

Rendell wants to charge drillers 5 percent of the value of gas at the wellhead plus 4.7 cents per 1,000 cubic feet of gas taken from the ground, starting July 1. The plan would raise $160.7 million in the first year and $1.8 billion over five years.

"I invited every one of the drilling companies to a retreat at the Governor's residence to talk ... about many things, including the severance tax," Rendell told the conference on natural gas, sponsored by the George W. Bush Institute and Southern Methodist University's Maguire Energy Institute.

"Only one of the major drilling companies said they would come," Rendell said. "Now I have not said that publicly, if I told the people of Pennsylvania that there would be a sense of tremendous outrage."

The "severance" tax is modeled on that used in West Virginia, where gas production rose 20 percent from 2002 to 2007, indicating that the tax is no deterrent to development, Rendell has said.

The Marcellus, which underlies about two-thirds of Pennsylvania and parts of surrounding states, is estimated to contain enough gas to satisfy total U.S. needs for 20 years.

The tax proposal must pass the state legislature and could face opposition in the Senate, which is controlled by the Republicans. The Democrats control the lower house.

Oil companies are losing the battle for public opinion, Rendell said.

"Public opinion has begun to turn against (natural gas) drilling ... and the industry continues to make mistakes," Rendell said, noting environmental worries such as diverting water and despoiling natural areas.

Removing gas from shale rock accounts for 15 to 20 percent of U.S. natural gas production and provides a relatively clean U.S. energy source.

But there are environmental concerns about a drilling technique called hydraulic fracturing which environmental groups say is a threat to drinking water supplies.

(Editing by David Gregorio)

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