NARO supports lower severance tax increase

Published Sunday, March 09, 2008

The Arkansas chapter of the National Association of Royalty Owners (NARO) prepared a document declaring their position on increasing the state's natural gas severance tax Saturday.

According to Arkansas NARO President Dwight Brown of Wynne, the association is in agreement that some state political leaders, including Gov. Mike Beebe, are using outdated natural gas production figures for 2006 to calculate a severance tax increase, and that an increase to 7 percent of the market value at extraction, as proposed by former Arkla CEO Sheffield Nelson, would be too high, as would an increase to 5 percent of the market value.

Beebe has also proposed a severance tax increase to oil and gas industry officials, though no information about Beebe's proposal has been released.

Arkansas NARO, an organization that will have an increasing degree of political influence as the Fayetteville Shale play "pans out," Brown said, would support restoring the state's 1934 severance tax of 2.6 percent, under certain conditions.

These conditions including the abolishment of the state's ad valorem tax on minerals, the return of 20 percent of severance tax proceeds to impacted counties, a portion of the proceeds used to monitor environmental compliance by the oil and gas industry, a regular audit on taxes deducted by the producers and collected by the state, improvement to the Arkansas Oil and Gas Commission's web site and "transparency" in transaction between mineral owners and production companies.

Brown said Arkansas NARO has relied heavily on independent research done by J. Larry Taylor of North Little Rock in establishing their position. Using current figures and projections, Taylor said, the state could be raising $100 million per year by 2009 with a 2.6 percent severance tax.

"I've double checked these numbers and I can understand that a 2.6 percent tax at 2006 production numbers isn't going to get you anything," Taylor said, "but at 2007/2008 production numbers, it makes about what Sheffield Nelson said 7 percent would.

"You can see where we're coming from on this," he added. "My concern is that there's got to be a reason that more recent numbers and projected numbers are not being used; it's misleading to continue to use 2006 production numbers."

According to Southwestern Energy's 2007 financial and operating report, the company's gas production in the Fayetteville Shale play increased from about 100 million cubic feet per day at the beginning of 2007 to about 325 million cubic feet by year's end. As of mid-February, the report also states, the company's wells were producing about 350 million cubic feet per day and can be anticipated to produce 450 million cubic feet per day that by the end of this year.

Though Southwestern Energy's wells represent the bulk of natural gas production in the state, Taylor said, increases in production are an industry-wide trend.

In a memo to Faulkner County Judge Preston Scroggin and Conway County Judge Jimmy Hart, first and second vice presidents, respectively, of the Arkansas County Judge's Association, Taylor said his research indictated an "urgent need" to gain approval of a "reasonable and efficient" severance tax increase quickly. To this end, he said, he advocated restoring the state's 1934 2.6 percent severance tax as doing so would require a simple majority vote during a special legislative session.

Arkansas NARO Vice President Nancy Dunlap said the association's position statement will be sent to Beebe and other state leaders in the hopes that it will have some effect in an issue that is still "up in the air."

"We've not got just an overwhelming amount of power right now, but we're the only group right now representing the royalty owners," Dunlap said. "In 10 years, as this thing grows, we'll be more of a force to be reckoned with, like NARO in Oklahoma and Texas. We'll be something like the Farm Bureau is with farmers."

Matt DeCample, press secretary for Beebe's office, said it is his understanding that oil and gas industry leaders are still considering Beebe's proposal, and that a ballot initiative is being prepared, presumably for the Nov. 4 General Election. As for restoring the state's 2.6 percent tax, DeCample said, "that's something we're not interested in at all. We do believe that's too low."

(Staff writer Joe Lamb can be reached by e-mail at or by phone at 505-1238. Send us your news at

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