SCLOC is responding to the June 24 Letter to the Editor in Corning Leader by Tim against Fracking.
A single natural gas well tapped through the drilling method known as horizontal hydraulic fracturing, or hydrofracking, could generate significant tax revenue for Ulster County local governments, school districts, libraries and fire companies, an industry representative says.
Scott Cline, a petroleum engineer who spoke in favor of hydrofracking as a panelist at an Ulster County Community College forum last month, said the assessed value of the drilling operations would be based in part on a rate set by the state on the number of cubic feet of natural gas produced. Separately, local governments would assess property associated with the operations.
At last month’s forum, Cline, representing the Independent Oil and Gas Association of New York, said a standard Pennsylvania well in the Marcellus Shale region, which extends to the western Catskills of Ulster County — produces 3 million cubic feet of natural gas per day. On that basis, he applied the low end of New York state’s assessment rate of $9.80 to $12.12 per 1,000 cubic feet of natural gas drawn; an equalization rate of 57 percent — recognizing that many municipalities are not assessing at full value — and then applied property tax rates for the Otsego County town of Worcester.
One that basis, Cline said a well would generate $50,083.04 in taxes for the town, $29,235.60 for the county, $181,192.96 for the school district, $943.31 for a library district, and $13,660.54 for a fire district, for a total of $275,115.45 in the first year.
By comparison, Ulster County, whose property tax rate of $3.86 per $1,000 of assessed value is lower than Otsego County’s, would see between $41,891 and $51,808 in county tax revenue. Revenue to towns, school districts and special tax districts would vary, depending on the location of a well.
Cline noted that the highest production from a well is during the first 12 months, and then it declines rapidly.
“You’re probably looking at a well life of about 20 years, but it is a steep decline,” he said. “It starts off at a high rate and then goes down linearly pretty quickly and then levels off over a long period of time. I would say the (second year) this well might average 2 million cubic feet a day instead of 3 million and the next year it might be down to one (million cubic feet per day) and then it probably would stabilize with something less than 500,000 to 700,000 cubic feet for a long period of time.”
He said companies seek to offset the production decline by increasing the number of wells.
“Typically one pad will have up to eight wells,” he said. “You’re drilling more wells to make up for your decline. Over time you’ll ramp up and you’ll reach a peak at some point in the future.”
Cline said the industry has also increased royalty rates for property owners.
“Historically in New York it was one-eighth royalty,” he said. “Now those royalties are actually approaching 20 percent. They are going up because it’s actually more competitive.”
Geoffrey Gloak, a spokesman for the state Department of Taxation and Finance, said the taxable value of wells is not set until the January after production begins.
“The unit of production value is based literally on the data that’s provided by the producers,” he said.
Confusion over assessing property under speculative sales of natural gas rights led the state Department of Taxation and Finance’s Office of Real Property Tax Services to issue guidelines for determining land value in March 2010.
“We have recently received questions concerning the treatment of short-term leases of the rights to search for and extract natural gas,” the agency said in its memo. “The particular questions concern leases for five-year periods. These leases can be for as much as $5,000 per acre, a price far in excess of what land similar to the leased land had sold for previously. The leases also contain a royalty payment if gas is extracted.”
The agency said that although it is possible to separately assess oil and gas rights, “we strongly recommend against doing so” because regulations have not been set for drilling.
“Separately assessing the lease would of course require the assessor to determine what the value of the lease is,” the agency said. “A one-time payment for these rights does not establish the value of the lease itself. Similarly, it would be unsound appraisal practice to assume that this one-time payment establishes the value of the land subject to the lease in an open market transaction. It would be even more unsound to assume these payments establish the market value of other properties.”
The agency suggested that assessors “monitor land sales to see if these leases are having any effect on sales prices.”
“Even if an assessor determines that the possibility of extracting gas has come to permeate a market, as with any other factor the assessor would also have to consider whether this factor has any effect on the value of particular parcels,” the agency said.
By William J Kemble, Correspondent
Tim’s assertion that the gas and oil industry are exempt from federal environmental laws; the Clean Air Act and Clean Water Act, every part of it, is false. The oil and natural gas industry is regulated under every single one of these laws — under provisions of each that are relevant to its operations.
The process of hydraulic fracturing has never in its 60-year history been regulated under the Safe Drinking Water Act (SDWA). It has, however, been regulated ably and aggressively by the states, which have compiled an impressive record of enforcement and oversight in the many decades in which they have been engaged in the practice.
Far from being “pushed through Congress by Dick Cheney,” the Energy Policy Act of 2005 earned the support of nearly three-quarters of the U.S. Senate, including the top Democrat on the Energy Committee; current Interior secretary Ken Salazar, then a senator from Colorado; and a former junior senator from Illinois named Barack Obama. In the U.S. House, 75 Democrats joined 200 Republicans in supporting the final bill, including the top Democratic members on both the Energy & Commerce and Resources Committees.