The Worcester Gas Tax Hoax
Fracking apologists, including a lawyer representing Norse Energy and one of theNew York land owners groups, have touted an apocryphal estimate of what ahypothetical shale gas well would pay in ad valorem property taxes in the Town of Worcester in Otsego, County. This mythological well is also used in the rathermisleading argument against a severance tax in New York – implying that sincethere is an ad valorem local property tax on gas wells in New York, there does notneed to be a state production (severance) tax at the wellhead. Let’s examinethese arguments.
No Gas No Tax
– The ad valorem property tax is based on the amount of gasproduced; if there is no production, there is no tax. The property tax valuation issimilar to the “income method” on commercial property – such as a shoppingcenter – which values the asset based on its productive value. The method used inNew York is not dissimilar from that used in every other state that has a property tax on oil and gas wells – meaning every state with oil and gas production
– which has no property tax on gas wells. New York’s method of valuing production is not suited to horizontal shale gas wells, since the value of such wells is gone in literally a matter of months – approximately 80% of the value is gone in the first two years.
Once the initial surge of gas is gone, the value of the well on the tax rolls would drop precipitously.
If there is no gasproduction, there is no tax.Dry Holes -
Tests of the Marcellus and Utica shale gas formations have not been successful near Worcester, as illustrated in the map below provided by Karen Edelstein using
These so-called “double play” test wells weredrilled in what was touted as the “fairway” of the Utica and Marcellus, that area where the shale was thought to be most productive. None of them weresuccessful, and one of the test wells, the Pullis 1, has already been plugged. Thelocation for the Ross 1 well was picked by Gastem USA, which traded at $3 ashare prior to drilling the test well, and 8.5 cents soon afterwards. Based on theisopachs and total organic content of the Marcellus, results on a well in Worcester should be similar to the Ross 1.
The ad valorem property tax on sucha well would be zero.