By Caleb Taylor
How did a 2009 state severance tax increase affect natural gas production in Arkansas?
Not much, according to a forthcoming paper entitled “Examining the effect of Arkansas’s increased severance tax rate on natural
gas production,” co-authored by ACRE Undergraduate Research Fellow Macy Scheck and UCA Professor of Finance Dr. Mike Casey
According to the abstract of the paper:
This paper investigates the effect of Arkansas’s 2009 increase in the severance tax rate for natural gas in regard to the State’s production and investment. Economic reasoning suggests that an increase in this tax rate would prompt companies to look elsewhere for natural gas production. Using data from Southwestern Energy, this study compares both the Fayetteville Shale in Arkansas and the Marcellus Shale in Pennsylvania in terms of the average cost per well, production rate, and lateral length. This study finds that the severance tax rate increase had little to no effect on Southwestern Energy’s play selection. This implies that the decision to drill on one play compared to another comes down to a simple marginal cost-benefit analysis, in which the tax structure is one of many cost variables that factor into this decision.”
“Play selection” refers to where a company chooses to extract natural gas.
Scheck is a part of ACRE’s Research Fellowship Program. In this program, students work with a professor to write a publishable research paper. Scheck has been working with UCA Professor of Finance Dr. Mike Casey to investigate the effect of Arkansas increasing its severance tax on natural gas production.
Macy Scheck is from Grand Junction, Colorado. He is a senior majoring in Economics and minoring in German.
For more of ACRE’s work on taxes, check out the below links:
The Road Map to Tax Reform in Arkansas
Lessons From Other States Tax Reform Attempts
More on State Taxes and Spending