Drop in gas price makes severance-tax payoff uncertain

 
As tax on natural gas kicks in, intake unclear
BY SETH BLOMELEY
Posted on Thursday, January 1, 2009
URL: http://www.nwanews.com/adg/News/248190
Arkansas' increased severance tax on natural gas, approved in April after much debate, takes effect today amid questions about how many dollars it will produce for the state and what those dollars will do.
The tax is based on the price of natural gas, which has plummeted since the state last produced revenue estimates.
That means projections of $57 million to be collected in 2009 are uncertain.
The bulk of the revenue is to be spent on roads, but fluctuations in the price of oil have created more uncertainty on exactly how it will be used, said Cliff Hoofman of North Little Rock, a member of the Arkansas Highway Commission.
"We have talked about setting aside [severance tax revenue] for some identifiable project, but our discussions a few months ago was that we should put that on hold because we were experiencing a real calamity in the reduction in department revenue," Hoofman said. "Now, we don't know what's going to happen. We're sort of in a holding pattern."
Much of Highway Department revenue from the state is based on a gasoline tax of 22.5 cents per gallon. Fuel tax receipts for the department from July through October were $73.4 million, down from $77.9 million in the same period in 2007, said Randy Ort, department spokesman.
Highway off icials have blamed the decrease on the fact that people bought less gasoline because of the high prices earlier in 2008. But now that the price of gasoline has dropped from $4 a gallon to $1.50 a gallon, officials say it's unclear whether fuel tax revenue will go up.
Hoofman said the severance tax money may end up simply making up for the loss in the fuel tax revenue. He said it "would be irresponsible" to start new projects with the money until the department has a better idea of the amount of tax col- lections.
The severance tax was increased after a surge in drilling in the Fayetteville Shale natural gas deposits in north-central Arkansas.
The previous rate was 1 cent per 1,000 cubic feet of gas, which was set in 1957 and was based on volume so it hadn't increased since then. The tax raised about $600,000 a year.
Gov. Mike Beebe and the Legislature increased the tax to 5 percent of proceeds from the sale of gas by the producer less the cost of treating and transportation.
The state projects revenue to increase to about $100 million by 2013.
The proceeds are to be divided four ways, with 5 percent going into state general revenue. Of the remaining 95 percent, 70 percent is to go to state highways, 15 percent to counties and 15 percent to cities.
Beebe called a special legislative session to raise the tax after negotiating with natural-gas production companies on an increase. That led to consensus in the Legislature to approve it.
Little Rock attorney Sheffield Nelson had called for an initiated act to raise the tax by an even greater amount, if the Legislature and the governor failed to act.
Nelson said some have argued that Beebe's agreement with the gas companies is too soft and contains too many exemptions.
"But it's 100 times more than what the state has been getting up until this time," Nelson said. "It's quite an accomplishment."
Nelson, a former Republican gubernatorial nominee and former natural gas utility executive, said "time has proven" that he and his supporters were correct to back off pursuing a ballot initiative to raise the tax.
He said he thinks that the economic downturn could have made it harder to raise any tax.
"Had we fought a very tough battle from that time until November, even if we had won, there would have been negative consequences," Nelson said. "No one would come down with a good taste in their mouth. I think we would have won but we would have burned so many bridges."
For example, he said had a ballot initiative been successful he doubted that natural gas producer Southwestern Energy of Houston would have decided to build a $25 million regional headquarters in Conway, which was announced Dec. 18.
At the time of the severance tax's passage in April, the price of natural gas traded on the New York Mercantile Exchange was $10 per 1,000 cubic feet. Now, it's $6.
"That's probably artificially low," Nelson said. "It's tagged to a certain degree of what's happening with oil. It will go back up."
Oil is a major ingredient in asphalt. So even though the Highway Department would have gotten more severance tax money when the price of natural gas was high, roads were more expensive to build and fix because of the increased price for asphalt, Hoofman said.
Hoofman said it's unclear whether the price for asphalt will decline with the reduction in oil prices the past couple of months. He said there should be some indication of that next week when project bids are opened.
Beebe spokesman Matt De-Cample said the governor expected uncertainty in the price of natural gas.
"We'll just take it as it comes," he said.
State revenue estimates were based on $8 natural gas. Richard Weiss, director of the Department of Finance and Administration, said the state hasn't updated it's revenue estimates for the severance tax.
Beebe said in 2008 that he wanted the severance tax money to be spent at the Highway Department based on "money following the cars," meaning in areas of high traffic and in places where it could help economic development.
DeCample said that's Beebe's general philosophy on highway revenue but that the governor has no specific plan on spending the severance tax money.
"We accepted the adjustment of the Arkansas severance tax," said Danny Games, spokesman for Chesapeake Energy Corp. of Oklahoma City. "We and our royalty owners pay similar types of taxes in most of the other states where we operate."
A Southwestern Energy spokesman didn't return a message.
Also taking effect today are two proposals approved by the people at the Nov. 4 election:
An initiated act that bars unmarried people living together from adopting children or being foster parents. The American Civil Liberties Union has filed a lawsuit challenging the law in Pulaski County Circuit Court.
A constitutional amendment calling for annual sessions of the Legislature, which now meets in regular session every odd-numbered year. So the first additional session under the terms of the amendment would be in 2010.
Copyright © 2001-2009 Arkansas Democrat-Gazette, Inc. All rights reserved. Contact: webmaster@nwanews.com

Gas-lease cash to pay new inspectors of drilling sites

IT'S ABOUT TIME!

Agency says gas-lease cash to aid hiring of inspectors
BY L. LAMOR WILLIAMS
Posted on Thursday, December 18, 2008
URL: http://www.nwanews.com/adg/News/246962/

Gas-lease money to hire inspectors

The Arkansas Department of Environmental Quality is set to get $3.5 million from the Arkansas Game and Fish Commission that it will use to hire more inspectors to keep watch on the state's growing natural gas drilling industry.
Teresa Marks, director of the Department of Environmental Quality, said Wednesday that while a formal agreement has yet to be signed, she is looking forward to using the money to hire new inspectors to regulate drill-water disposal sites.
The money will come from leases issued by the Game and Fish Commission to natural-gas firms to drill on state-wildlife management areas.
Drilling for natural gas in the Fayetteville Shale geologic formation has led to the creation of at least 13 drill-water disposal sites, which are permitted to store the water and rock sediment discarded during drilling. Two sites recently were ordered to cease operation until violations have been remedied.
...
The department currently has 17 inspectors who only visit the disposal sites in response to complaints. Eight inspectors are assigned to the Fayetteville Shale.
The Game and Fish Commission earns about $30 million annually on the land leases.

Raft Creek pollution by gas-driller's waste kills fish in Wildlife Management Area

 
Dead fish spur state to ban site from taking driller wastewater
BY L. LAMOR WILLIAMS
Posted on Wednesday, December 17, 2008
URL: http://www.nwanews.com/adg/News/246862
Gas-drilling waste kills fish in Raft Creek

A second facility used to store and dispose of discarded water used by natural gas drillers can no longer accept the wastewater, the director of the Arkansas Department of Environmental Quality said Tuesday.
A property owner reported seeing dead fish on his property near the Griffithville disposal site operated by Searcy-based Central Arkansas Disposal, said Teresa Marks, director of the Department of Environmental Quality.
After investigating, the department issued an emergency order Friday after an inspection found a "large unlined, unpermitted waste treatment reservoir," being filled through an underground pipe from the licensed facility, the emergency order states.
On Dec. 3, the department closed a wastewater storage and disposal facility near Carlisle for improperly applying the water onto farmland.
Marks imposed a moratorium on new permits for drill fluid storage facilities until a study is completed examining the effects the operations have on soils and waterways. She said Central Arkansas Disposal was already scheduled for sampling.
The director said the complaint coincided with the ongoing study.
"We did have some sampling that was part of the scientific study, but also had a complaint about a reservoir that a citizen was concerned about," she said. "We went out to test as a result of the complaint and determined that it had high a level of chlorides."
The manager of Central Arkansas Disposal, Ron Carl, was traveling out-of-state Tuesday and was unavailable for comment, according to a man who answered the phone at the company's office in Searcy.
The unpermitted reservoir was emptying into Raft Creek, the emergency order says and an employee from Central Arkansas Disposal "stated that the fluid within the reservoir was from the Central Arkansas Disposal facility. The employee did not know if the fluid reached the reservoir by pumping or gravity flow."
A water sample also found high chloride levels in the stream. The creek feeds the Steve Wilson/Raft Creek Wildlife Management Area in White County.
Mike Armstrong, chief of fisheries for the Arkansas Game and Fish Commission, said because the fish found on the landowners property had been dead for at least a week or more, it was hard to determine the magnitude of the fish kill in the creek.
"We did delineate that between a one-mile and two-mile stretch of the creek was affected," Armstrong said. "We found several largemouth bass up to 4 pounds and quality sized crappie so there was a robust fish population in those ditches."
Armstrong said the commission would study data on similar habitats to make an estimation of how many fish should be in the area.
"I would suspect that kill would be in the thousands with dead bass in the 2- to 4-pound range," he said.
Land farms consist of at least two large plastic-lined ponds that hold drilling fluid - which is mainly water and rock sediment discarded during drilling. After obtaining a permit from the department, land farm owners are allowed to irrigate crops with the fluid, after sending samples to the department.
The fluid is generated by companies drilling for natural gas in the Fayetteville Shale, a geologic formation that stretches from north-central Arkansas to the Mississippi River. The formation is expected to have a $22 billion impact on the Arkansas economy by 2012, according to a University of Arkansas study.
Marks said she is unaware of any drinking water in the area that could be affected, but that the company now faces a penalty of up to $10,000 per day of being in violation of its permit.
She said the emergency order simply calls for the company to cease operation, but enforcement action will follow.
"We have a matrix at the water department and we can plug in such information as whether or not harm was done to the environment; whether or not it was an intentional act and whether or not the company has a history of violations, things like that."
Copyright © 2001-2008 Arkansas Democrat-Gazette, Inc. All rights reserved. Contact: webmaster@nwanews.com

AP says drilling waste from Fayetteville shale gas wells used for irrigation found to be oily

The Morning News

Local News for Northwest Arkansas
http://www.nwaonline.net/articles/2008/12/13/news/121308arfayshale.txt

Firm Ordered Not To Take Drilling Wastewater

By THE ASSOCIATED PRESS
CARLISLE -- A company that collects wastewater from natural gas companies drilling in the Fayetteville Shale has been ordered by environmental regulators to stop.

The Arkansas Department of Environmental Quality issued the emergency order to Fayetteville Shale Land Farms near Carlisle after an inspection found the fluid -- a mixture of water and sediment discarded from the drilling process -- was not adequately contained on the property and included oil in violation of the state permit.

Arkansas has 13 "land farms." The operations use large plastic-lined ponds to hold drilling fluid, which they then use to irrigate crops. The wastewater must be contained and absorbed on the property and cannot include oil-based drilling fluids, which are listed as hazardous waste.

In its Dec. 3 order, the department said Fayetteville Shale Land Farms improperly applied the fluid to crops, creating pools on the Lonoke County property. Also, an inspector found "what appeared to be a large amount of oil in the staging pond."

According to the order, "Oil should not be found in the staging pond for fluids that are to be land applied."

Deputy Director Steve Martin said the inspection most likely was prompted by a complaint from a nearby resident.

A spokesman for Fayetteville Land Shale Farms did not immediately return a call for comment.

Information on fight against coal-fired power plants in Arkansas

Carbon Caps Task Force Information

EPA newsletter on watershed issues and sources of information

A site to learn about watershed management

Arkansas Democrat-Gazette editorial on drilling for gas on Game and Fish Commission land

Democrat-Gazette editorial on gas drilling on Game and Fish Commission land

The Arkansas Democrat-Gazette reports that natural-gas drilling may increase in Arkansas in 2009

Democrat-Gazette reports that Chesapeake Energy will increase drilling for natural gas in Arkansas in 2009

ADEQ makes pretense of protecting Arkansas watersheds from gas-drilling pollution

The Morning News

Local News for Northwest Arkansas


State Plans Closer Look At Drilling Water
By The Associated Press
LITTLE ROCK -- The top state environmental regulator her agency will increase inspections of areas where drilling companies store water used in boring through rock to reach natural gas deposits.
Arkansas Department of Environmental Quality Director Teresa Marks said Friday companies now send test samples to the department but that she wants the agency to start conducting its own tests.
Drilling has expanded rapidly across the Fayetteville Shale in north-central Arkansas, where higher natural gas prices have made it economically feasible to probe more difficult areas to extract gas. Drilling sites have lined storage ponds that contain water and rock from the drilling process.
Marks says random inspections at the ponds are to start immediately.
“A concern I have is we don’t know for sure what’s in those ponds,” Marks said Friday during the Arkansas Watershed Advisory Group and Arkansas Stream Team Watershed Conference. “They send us test samples, but we want to do testing ourselves.”
Marks says she has 17 inspectors, with eight of them working Fayetteville Shale. She says she needs to hire more inspectors to be able to handle the random testing.
Marks said that it would take a few months after the inspections to develop a report on the findings. There are a dozen sites that are allowed to store water that’s used during drilling, and three other companies are seeking ADEQ permits, she said.
“We want to do more testing and more research to determine the long-term effects the facilities could have on Arkansas,” Marks said.
The water can be used to irrigate crops, but soil and water samples must first be approved by ADEQ.
State Rep. Betty Pickett, D-Conway, who was at the gathering, said the Legislature should provide resources the ADEQ needs.
“This may be one of the biggest economic boons in Arkansas, and Arkansas needs it,” Pickett said. “Arkansas will be enriched by what’s going on, but while we bask in the dollar signs, we must not develop a blind eye for the environmental impact this will have. There’s no reason we have to trade one for the other.”
Shale drilling will contribute an estimated $22 billion to the state economy by 2012.
Pickett said she will encourage state regulatory agencies, such as the Arkansas Oil and Gas Commission and the ADEQ to work closely together to keep an eye on the industry.

Good idea only if using waste material from agriculture and timber production and without decreasing wildlife habitat. Clearing land pollutes air

Summit promotes growing high-energy plants
BY DUSTIN TRACY
Posted on Saturday, October 11, 2008
URL: http://www.nwanews.com/nwat/News/69979/
Northwest Arkansas Times Fayetteville’s first ever Sustainability Summit brought more than 300 people to the city’s center to talk about ways organizations can become more environmentally friendly. One way discussed was a switch from conventional diesel fuel to the use of bioenergybased fuel. Jim Wimberly with BioEnergy System LLC in Fayetteville talked about the energy-efficient idea at a small breakout session during the summit. “ Agriculture and energy are so intertwined, ” Wimberly said.
He said the idea is to start promoting the growth of high-energy yielding plants that can be processed and manufactured into a full spectrum of energy projects, including fuel for automobiles.
“ In essence, plants are batteries, ” he said. “ They store energy through photosynthesis. ”
Arkansas provides a large amount of natural resources to make bioenergy manufacturing a reality, Wimberly said, and if the state takes an active interest in the concept, it could cut in half its yearly 1 billion gallons of petroleum used each year.
“ It would take just under a million acres of herbaceous energy crops (crops high in energy ) to displace half of that diesel used, ” he said.
Wimberly said a lot of research is being done on soybeans to create biodiesel, and that it’s a good fuel. However, he said fuel users need to broaden their horizons.
“ We need to quit being worried about planting a future around traditional approaches to biofuel, ” he said.
The state has the forest and farmland to support biofuel operations, which makes it already an attractive location to bioenergy companies, Wimberly said, but Arkansas and its cities need to work towards sealing the deal with the green fuel producers.
“ We are in competition with neighboring states, ” Wimberly said.
Financial incentives as well as getting state landowners and far mers on board with the idea could be the key, Wimberly said.
“ It’s not going to happen unless (farmers ) can make at least as much money as they do growing traditional crops, ” he said.
Copyright © 2001-2008 Arkansas Democrat-Gazette, Inc. All rights reserved. Contact: webmaster@nwanews.com