Sunday, July 17, 2016

Max Brantley Has His Own Facts on Gas Bust

I was amused to see this today on Arktimes:

Fact: A higher severance tax wouldn't have discouraged exploration in the boom years and it didn't prevent the exodus of the exploration companies when market forces dictated it was time to go. The tax was always a marginal issue, except in what it could have produced for lasting benefit in the state.

Well, no. Those are not facts at all. They are opinions. Ill-informed opinions at that, and placing the word "fact" in front of ill-informed opinions does not make them any more factual.

The facts on Arkansas' severance tax for natural gas are outlined here. We had a very low tax rate for natural gas extraction when the boom started. Once the companies came here Gov. Beebe and his cohorts in crime increased the tax rate 10,000%. How do you think any business considering expanding to our state would think about that? If you saw the state of Arkansas increase tax rates on a specific business 10,000% in one year as soon as that business had sunk a lot of capital expenditures into the state would you be in a hurry to come here?

The massive increase in tax rates combined with a fall in gas prices and the profile of most of our gas wells all contributed to a 10% decline in revenues the following year. Can you imagine how much economic activity had to drop in order for revenues to go down from a tax whose rate had increased 10,000%? Brantley asserts as "fact" that the tax rate was "always a marginal issue" but even if it was, a lot of business deals are decided on the margin. If you are going to make ten cents on the dollar spent, but Arkansas wants five cents of that dollar in new taxes, then you just lost half you profit. Why not go next door and use your capital to dig wells over there?

I will say I agree that more attention needs to be paid to the environmental protection part of the equation, and also that Right of Way laws in Arkansas can be embarrassingly favorable to the corporate entity which wants to come through and very lax in upholding the rights and interests of property owners- unless you are one of the good ole' boys I am sure. Then allowances will be made. In short, my opinion, which I do not confuse here with fact, is that there may need to be some law and policy changes regarding energy distribution in Arkansas, but raising the gas severance tax is not one of them,


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