I heard a really funny joke the other day.
First let me set it up for you. On Wednesday, Ohio Gov. John Kasich unveiled a new bundle of policy proposals, with perhaps the most newsworthy one being a plan to fund a state income tax cut with higher taxes on shale drilling (aka, fracking).
Kasich's proposed higher and new shale-drilling taxes are intended to take advantage of the historic gas and oil rush that's just getting started in Ohio. Based on current prices, according to an article in the Thursday Columbus Dispatch, drilling operations in Ohio will generate $4 billion for the oil and gas industry next year and $23.1 billion by 2016.
But even with the governor's proposed taxes on shale drilling, Ohio's tax bite would still be lower than applicable taxes in Michigan, West Virginia, Texas and North Dakota.
So what's the joke?
In reaction to Kasich's proposal, Republicans in the General Assembly announced that they intended to strip the shale tax plan (and associated income tax cut) from governor's budget revision.
"We're going after an industry that is developing and hasn't even come to fruition yet," state Rep. Peter Beck, R-Mason, told the Dispatch. "Why would we do something like that at this juncture?"
Beck chairs the Ohio House Ways and Means Committee, the body that will be asked to approve Kasich's plan.
In the same article, Terry Fleming, president of the Ohio Petroleum Council, warned that any new taxes on shale oil and gas drilling could stall the economic boom in Ohio. Referring to the tax and regulatory structure this state put in place two years ago, Fleming declared, "Any change to that structure could drive away investment from the state, and send local jobs with them."
If you don't get the joke, let me explain.
The Marcellus shale, where much of the oil and gas "fracking" boom has been taking place for several years, encompasses 95,000 square miles in the Appalachian basin. According to a November article in The American Oil & Gas Reporter, "the Marcellus ranks as the second-largest natural gas accumulation on the planet, with up to 500 trillion cubic feet of estimated recoverable reserves."
The Marcellus stretches into eastern Ohio, though it's mostly located in Pennsylvania, New York and West Virginia.
However, according to the same article, "lurking 2,000 to 7,000 feet beneath the massive Marcellus formation is (emphasis mine) an even more dominant geologic feature: the Utica shale… a formation that is thicker and much more geographically expansive than even the Marcellus."
And guess what state stands to benefit the most from the Utica shale?
Why, Ohio, of course. After noting that the Utica shale spans eight states and crosses into Canada, encompassing 170,000 square miles, the same article states, "The epicenter of initial drilling and development activity to test the potential of the Utica is eastern Ohio and western Pennsylvania."
Additional factors make the vast resources underlying the Utica shale even more attractive to oil and gas companies. For one, they already have much of the necessary drilling infrastructure and crews nearby, in the Marcellus fields of Pennsylvania and West Virginia.
Secondly, in much of Ohio, including Athens County, the Utica shale overlays the Pt. Pleasant geological formation. Without getting all scientific, let's just say that the interaction of the two formations, Utica and Point Pleasant, adds a brittleness to the rock formations that makes the oil and gas much easier to access with hydraulic fracturing.
Finally, the Utica shale, with its potential for harvesting both oil and natural gas liquids, more so than dry natural gas, is custom-made for the current market, in which natural gas prices are severely depressed while oil and NGLs are doing quite well, thank you.
So, all things considered, the suggestion, as stated by oil industry big-wig Fleming and Republican House leader Beck, that marginally higher taxes will scare away investment in Ohio's massive Utica shale play, is balderdash of the highest order. It should only be taken seriously on a comedic level, as the Hall of Fame howler that it is.
There's one problem. In Ohio, the Republican legislative leadership, and to a lesser extent, the regulatory apparatus, are joined at the hips with the oil and gas industry. If the oil and gas guys shout, "Frog!" their beholden GOP lap-dogs squeal, "How high?! How far?!"
This most recent development, if nothing else, should confirm that the Statehouse debate over oil and gas development in Ohio is occurring many miles to the right of the debate in Athens County. The power-brokers aren't giving a second's consideration to the possibility of suspending fracking, something advocated frequently in our neck of the woods.
When John "S.B. 5" Kasich is holding up the leftward side of the debate on fracking at the Statehouse, you get a good feel for how truly wide-open Ohio is for an industry not celebrated for its environmental restraint or business ethics.