Leader Blues

Tuesday, March 25, 2008

EDITORIAL >>We’re bullish on natural gas

Here is some helpful prologue to the special legislative session on the severance tax that Gov. Beebe will convene Monday: The second-biggest producer in the Fayetteville shale play announced yesterday that it would more than double the number of rigs drilling in the shale by early next year.

So much for the argument by Republican leaders that Beebe’s 5 percent severance tax will discourage exploration. Chesapeake Energy Corp. of Oklahoma City said it had ordered 13 more rigs and would have them operating in central Arkansas by the first of 2009. The other major exploration companies, Southwestern Energy and XTO Energy, are expected to follow.

The companies had factored in the little tax long ago and they are not slowing their activity. Why should they?

April gas futures on the New York Mercantile Exchange hovered at $9.47 a thousand cubic feet yesterday, and the forecasts for the gas market the next few years are bullish. The net effect of the severance tax, which Beebe should be able to sign into law by late next week, will be 3 percent of net profits after the companies have recovered their investment.

Vast wealth minus 3 percent is, well, vast wealth. No business with the resources will pass up such an opportunity.

The companies agreed to support the little tax, perhaps because they know that it is right for the public to reap some compensation for the harvesting of a finite resource but also because a 7 percent tax with no exemptions was almost a certainty otherwise. A 7 percent tax will be on the general-election ballot if the legislature fails to act. For the general public (voters) the tax is a free highway, road and street program. No motorist or taxpayer — other than mineral rights owners — will pay a dime of it.

But who is there still to persuade of the rightness of the cause?

The reports this week were that half or more of the Republican lawmakers intended to vote for the tax in spite of the pleas of the state Republican chairman, the party’s gubernatorial candidate in 2006 and the GOP chairmen of the House and Senate tax committees that Republicans take a stand as a matter of principle against taxes of any kind and for any purpose.