The Ohio 130th General Assembly is considering two new bills, House Bills 59 and 72. Each bill proposes changes to Ohio’s oil and gas law. Following is a summary of the proposed changes relevant to Ohio’s oil and gas law in each bill.
House Bill 59
On Feb. 12, 2013, Rep. Amstutz (R-Dist 1) introduced House Bill 59, Gov. Kasich’s budget bill. The full Bill Analysis from the Ohio Legislative Service Commission is also available online. The following proposals affect Ohio oil and gas law:
1. New Taxes
The oil and gas tax changes proposed by the Kasich administration have been the most publicized part of H.B. 59. The bill would lower income taxes for all tax brackets by a total of 20% over the next three years, funded by increased oil and gas severance taxes. H.B. 59 also proposes to calculate property taxes from the true value of gas reserves based on the British thermal unit (Btu) content of the gas extracted and the true value of condensate reserves. Other tax provisions in H.B. 59 are differentiated based on whether production is from a horizontal or nonhorizontal well.
A. Nonhorizontal Wells: H.B. 59 would change ORC §5749.02 to adjust the rate of severance tax on gas from the current 2.5 cents per MCF to the lesser of 3 cents per MCF or 1% of spot market value. It would also raise the tax rate on severance of oil from 10 cents per barrel to 20 cents per barrel. It would exempt nonhorizontal wells for paying severance tax on gas if they produce less than 10 MCF per day in a quarter.
B. Horizontal Wells: H.B. 59 would change ORC §5749.02 to levy a severance tax at a rate of 1.5% of the spot market value of oil and condensate produced by horizontal wells for the first five quarters of a well’s production, with the rate jumping to 4% beginning in the fifth quarter. Gas measuring no more than 1,050 Btu would incur a severance tax of 1% of the spot market value of gas. For gas measuring more than 1,050 Btu, the severance tax would be variable, calculated according to the Btu of the gas and the spot price of gas and natural gas liquids (NGLs), with a base rate of 1.5% for the first five quarters and a base rate for gas of 1% and for NGLs of 4% after the first five quarters of production.
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