LITTLE ROCK — Arrogance and greed have been the downfall of many powerful men and corporations through the years, and I believe that is playing out here in Arkansas with the multibillion-dollar natural gas companies. During the last legislative session, a lobbyist for Southwestern Energy Corp. advised the leadership of the House of Representatives that it would fight any proposal that would cost them anything.
To understand the significance of this, you have to know that the energy companies are paying one of the lowest natural gas severance taxes in the country here in Arkansas. They broadly tout that they are paying 5 percent, but they know this is not true. In fact, they paid only 1.5 percent in severance tax during a recent 12-month period, and they are acutely aware of this. Only three of the 30 states that pay a natural gas severance tax are at a lower rate. In the surrounding states of Louisiana, Texas and Oklahoma, they pay 35 cents per thousand cubic feet, 7.5 percent of market value and 7 percent of gross value, respectively, or roughly five times what they pay here in Arkansas.
These same companies sold the gas they extracted from Arkansas in that year for $3.6 billion. Arkansas received only a pittance of $54.6 million in severance tax. These companies have damaged the highways in the Fayetteville Shale and surrounding area to the tune of $450 million, plus they have done tremendous damage to the county roads and city streets in the areas, and the damage increases daily. The damage to the roads is taking a tremendous financial toll on people who live in these areas, plus all who travel them, by significant damage being done to their vehicles. Yet these giant companies do not feel that they should pay us enough in severance taxes to do much more than pay the interest on the damage they are creating, with no money to apply to repairing the roads.
They are wreaking havoc on the environment. They were found to be the likely cause of the large number of earthquakes in the area, yet they successfully fought several legislative proposals that would have provided some control over them. They are causing tremendous harm to the water supplies in the area due to the fact that 3 million gallons of water are used to frack each deep well. They are also endangering our rivers, streams and lakes as they construct roads, gas lines and drilling pads, and they are drilling wells under these waterways. Their response remains that they will not pay any more than they are paying.
What they are doing is simply not right, yet our Legislature lets them get by with it. What about the idea of protecting the people they were elected to represent? This is accentuated by the fact that all the Legislature passed were proposals to pay for all the damage to roads through a 5-cent per gallon tax on diesel fuel and a half-cent sales tax, and we, the people, would pay for these. The diesel fuel tax has been abandoned, but they plan to put the half-cent sales tax on the ballot for us to vote on. They would not even consider placing a proposal to increase the severance tax on natural gas on the ballot, thus forcing us to place it on the ballot through the initiative process by gathering over 62,000 valid signatures on petitions. Something is terribly wrong with this picture.
Nevertheless, we are going to try to mobilize the voters of Arkansas. We plan to qualify the issue for the ballot through the gathering of signatures in support of The Natural Gas Severance Tax Act of 2012. In that proposal, we would charge a flat 7 percent of gross income, doing away with all exclusions and exemptions. Contrary to what the other side will spend millions of dollars to tell you, this would move Arkansas to only 10th place in the percentage of severance tax charged. It would produce about $250 million each year for the construction and repair of roads. The large companies that are making billions of dollars on the sale of our natural gas would pay the majority of the bill.
The multibillion-dollar companies will yell and scream and threaten to stop drilling. The only problem with this false argument is that they are making money hand over fist in Arkansas, and they are not leaving until they have extracted all the gas that is available. Southwestern Energy has been joined by two more multibilliondollar companies to drill in the Fayetteville Shale area. BHP Billiton, an Australian company, paid Chesapeake Energy $4.75 billion for its interests in Arkansas, and Exxon Mobil has spent hundreds of millions of dollars for several companies to join in this lucrative effort. Nobody is going anywhere, and the drilling and damage being done are going to grow exponentially.
We must wake up and make the companies doing the damage pay a fair natural gas severance tax now. If we do not, we will have let an industry of carpetbaggers come in and severely damage our beautiful state and depart without paying anything close to the cost of damages they have inflicted. You and I and our children and grandchildren will be left holding the bag, and it will take decades for us to pay for the damage they have done.
My 7 percent natural gas severance tax proposal is the only fair way to handle this matter, and the people of Arkansas will have to join us in order to make this a reality.
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Sheffield Nelson is a former gas company executive, and is chairman of the Committee for a Fair Severance Tax.
Editorial, Pages 11 on 09/26/2011