Pa. Governor-elect’s policy changes to impact natural gas industry

In a decisive election this past November, Democrat Tom Wolf defeated sitting Pennsylvania governor and Republican, Tom Corbett, running on a platform of, among other things, changes to the natural gas industry. Wolf will take office January 20, and his policy ideas for this industry, if implemented, would impact operators both prior to and after the point of extraction.

Tom Wolf campaigned on supporting local municipalities’ rights to impose distinct zoning restrictions affecting natural gas drillers. In passing the much debated Act 13 in 2012, the Pennsylvania legislature and Governor Corbett tried to curb local municipalities’ ability to pass ordinances restricting oil and gas drilling. Since Act 13’s enactment, the PA Supreme Court has chipped away at Act 13’s restrictions on localities, notably the uniform land-use rules contained therein, declaring parts of the law unconstitutional. Wolf supports individual municipalities’ authority to pass zoning restrictions and other ordinances that may impact the industry, e.g. where drillers may place well pad sites. For natural gas drillers, compliance may become increasingly difficult if a greater number of communities pass different standards to which they must conform.

Governor-Elect Wolf also favors imposing a 5% severance tax on gas extraction in Pennsylvania. Natural gas industry players should be familiar with a severance tax, as most states where gas drilling is common impose such a tax. However, the structure of severance taxes varies by state. For example, Ohio taxes at a specified rate of $0.03 per 1,000 cubic feet of natural gas extracted, whereas Texas assesses a 7.5% tax based on the market value of the gas. Other states, like Tennessee, base the tax on the actual sale price of the gas.  Some states employ a progressive tax that increases if the price of natural gas rises above a certain price-point, rather than taxing at a set percentage rate. It was not clear from Wolf’s campaign what type of tax structure he prefers; deciding that question will be a job for the Pennsylvania legislature.

Whether Tom Wolf’s election will help or hinder natural gas drillers in Pennsylvania is, as of yet, unknown, but it is clear that changes to the industry will be coming down the pipeline soon.