19 November 2008

the tax that isn't ?

in early April of 2008, Gov. Beebe signed into law a so-called "increase" in the natural gas severance tax, when natural gas prices were bouncing between $9 and $10 per mmbtu. within 100 days of the signing, natural gas prices climbed to over $13. in the subsequent 100 days the price dropped to less than $7. the spring's rabid planning for exploration, drilling, and projecting future tax revenues for the state of Arkansas is now becoming the winter's rabid quest for merger and acquisition at bargain prices, aided and abetted by the state's legislated long-term windows of tax exemption.

will Arkansas ever see more money from the new "increased" tax than from the old tax ? let alone the kind of money projected just 6 months ago ? probably not. by the time the shake-outs, shakedowns, mergers, inflation, and a return of demand is realized, the rules will likely be changed again.

Beebe signed identical House and Senate bills to raise the severance tax from the current rate of three-tenths of 1 percent per 1,000 cubic feet of gas to 5 percent of the market value of the gas, with reductions for some wells.

The increase, which becomes effective Jan. 1, is expected to generate about $57 million next year and an estimated $100 million by 2013. All but 5 percent of the additional revenue is earmarked for state and local road improvements. (link arnews 3April08)

Chesapeake, the largest U. S. natural-gas producer, has been rumored as a takeover target of BP — speculation possibly fueled by BP taking an interest in certain Chesapeake ventures in the past few months.

BP, Europe’s second-largest oil company, said in September its U. S. arm plans to buy a 25 percent stake in Chesapeake’s Fayetteville Shale assets in Arkansas for $ 1. 9 billion. A month earlier, BP said it had bought similar Chesapeake assets in Oklahoma for $ 1. 7 billion.(link ardemgaz 19November08)