By Jon Cassidy | Ohio Watchdog
COLUMBUS — The actual early production figures from new oil and gas wells in eastern Ohio are much lower than the predictions Gov. John Kasich has been using to his sell his severance tax plan.
The companies operating 10 new wells disclosed the figures earlier this month. The average production rate at the 10 wells is roughly a third what would be needed to reach Kasich’s revenue estimates, according to a report published Thursday by Matt Mayer, founder of a conservative think tank called Opportunity Ohio.
“It’s concerning that a group like Opportunity Ohio could become so co-opted by liberal thinking that they would oppose an income tax cut for Ohioans,” Kasich spokesman Rob Nichols said.
The Republican governor’s revenue projections are based on projections by the Ohio Shale Coalition, which advocates for shale gas and affordable energy, that new wells will produce an average of roughly 90,000 barrels of oil in their first year, and decline thereafter.
Of the 10 wells whose production figures have been made public, only one is close to that range, at a projected annual production of 73,730 barrels of oil. The other nine wells were on pace for an average of 22,371 barrels, according to Mayer’s report.
He was working with figures disclosed earlier this month in quarterly earnings reports and earnings calls.
Mayer reports that only 14 wells were online as of July 1. Kasich’s projections count on 172 wells online this year.
Mayer’s report follows a critical article by The Associated Press earlier this month, which reported that Kasich’s estimates that one energy company could generate as much as $1 trillion in revenue were “an exorbitant overestimate.”
The AP noted that the figure “represents more than four times U.S. oil production last year. Viewed another way, every drop of oil produced in America for the next four years will be worth roughly $800 billion, based on current prices and production rates.”
With proceeds from the severance tax on energy production, Kasich plans to fund a small income tax cut for Ohio residents before he runs for re-election. The severance tax amounts to a 2.7 percent surtax on revenue, not profit, and is paid in addition to income and other taxes. Kasich’s proposal is to use the new taxes to fund an across-the-board income tax cut for Ohioans.
Under current tax law, shale development economic activity is projected to produce some $476 million in annual tax revenue by 2014, according to the Ohio Shale Coalition. That’s compared with $16.5 million paid in 2011.
The severance tax would be on top of that; it’s projected at $442 million by 2014 and up to $1 billion by 2016.
While actual production has proven lower than estimates, early drilling costs are almost twice as high as Kasich’s estimates, Mayer writes. If those figures hold, Mayer projects that “the average state income tax cut Ohioans will receive won’t happen for at least four years and the amount will be roughly $16, enough for a large pizza with a few toppings from your local pizza shop.”
Eventually, the Utica Shale formation in eastern Ohio should prove a major boom for the economy.
The current industry estimates are $23 billion in total output and sales by 2015, as well as 204,000 new jobs. The largest 16 companies have leased around 4 million acres for drilling in eastern Ohio, according to the Akron Beacon Journal.
Contact Jon Cassidy at email@example.com.