American Oil and Gas Reporter - April 2017 - 107

ConventionSection: Tennessee Oil & Gas Association
Severance Tax
The Tennessee Legislature is again
considering legislation to change how
the state's severance tax is allocated, reports Roxanne Reiley, vice president at
Laine Communications, which represents
TOGA at the Capitol and manages association affairs.
"HB 1187/SB 1315 would allocate
virtually all severance taxes on oil and
gas to the county where the minerals are
produced," Reiley affirms.
Currently, two-thirds of severance tax
revenue goes to the state's general fund
and the remaining third goes to the county,
she notes. The legislation would send all
severance tax revenue, less an administration fee, to the producing county.
"We are talking about a drop in the
bucket for the state," Reiley comments.
"On the other hand, it does mean a lot
for the county. These are mostly rural
areas with very little economic activity."
However, Reiley says Statewide Organization for Community eMpowerment
(SOCM), a 40-year-old grass-roots community organization, has advised TOGA
it will endeavor to amend the legislation
to increase the severance tax rate 1-2
percent. In the 2016 session, a bill reallocating severance taxes and increasing
the rate from 3 to 4 percent was not approved, she notes, adding that the sponsors
of HB 1187 and SB 1315, Representative
John Ragan, R-Oak Ridge, and Senator
Paul Bailey, R-Sparta, are not in favor of
a tax increase.
Laine says taxes typically are hotbutton issues for Volunteer State legislators.
"With our Republican supermajority in
both houses, you could not raise taxes
while the state is sitting on a $2 billion
budget surplus," he opines. "Do that and
you would never get re-elected."
"We are optimistic we can defeat a
severance tax increase," Laine assesses.
"Reallocating the oil and gas severance
tax would help these economically disadvantaged counties and align the tax
with the coal severance tax, all of which
now goes back to the county."
The bill has been assigned a $500,000
fiscal note, Reiley reports. Consequently,
she explains, it has been moved "behind
the budget," which means lawmakers will
have to set aside $500,000 on top of the
state's operating budget to fund the loss
to the general fund. "This is the same
problem TOGA ran into last year, and
could present a major challenge again in
2017," she comments.

TOGA Annual Meeting
Gatlinburg, TN.
Monday, May 15
4-6 p.m. Registration Open, Park Vista
Hotel Upper Level
4-6 p.m. Hospitality Suite Open
6-9 p.m. Loco Burro Hosted Dinner

Tuesday, May 16
8 a.m. Registration Open, Park Vista Hotel
9-10 a.m. Technical Session
Welcome and Legislative Update, Chuck
Laine, TOGA President
"Gas line Issues on TVA Rights of Way,"
Stephen Williams, Program Manager,
Tennessee Valley Authority
10-10:15 a.m. Coffee Break
10:15-11:45 a.m. Technical Session
"Bonding Issues in Tennessee," Mike
Burton, Oil & Gas Program Supervisor,
Tennessee Department of Environment
and Conservation
"Pre-Chattanooga Structures and Oil/Gas
Plays in Central Tennessee-Worthwhile
or Not?" Robert Hatcher, Professor
and Distinguished Scientist of Structural
Geology and Tectonics, University of
Tennessee Knoxville
Noon-1 p.m. Awards Luncheon
Muddy Boots Award Presentation
1:15-2:45 p.m. Technical Session
"Advances in Geographic Information
System Software," Gary Bible, President
Cougar Dome LLC
TBA
3-4 p.m. TOGA Board of Directors &
Membership Meeting
Board of Directors Election

"This bill would provide a real benefit
to the counties, which we support," Reiley
concludes.
Nitrogen Completions
Laine notes that an 18-month program
by TOGA begun five years ago resulted
in revised bonding requirements and the
successful codification of hydraulic fracturing procedures. The program was part
of an industry plan to head off an emerging
effort by opposition groups to restrict oil
and gas development.
"At that time, fracturing was a real
hot issue for environmental groups," Laine
relates. "They looked at our permitting
rules and said, 'Whoa, there are no rules
in place on fracturing; let's shut it down
until we can get rules written,'"
TOGA worked with the legislature to
pass a resolution authorizing the three
sides-legislators, environmentalists, and
industry-Laine says, to work together on
fracturing rules.

"We were able to produce rules for
what we were doing already on completions, so the rule making went smoothly,"
he recalls.
Data provided by TOGA indicates,
"The vast majority of drilling operations
in Tennessee are standard vertical tests
drilled with air rotary equipment, and
vary in depth from 2,000 to 6,000 feet.
"While most of the country uses millions of gallons of water to fracture a
well, Tennessee operators rely primarily
on nitrogen gas to stimulate wells," according to the TOGA report. "Use of nitrogen presents several unique benefits,
including eliminating the need for water
withdrawals and excessive wastewater
disposal."
Laine adds, "Once water use and disposal is off the table, they had little they
could come after us with."
As a result, new well stimulation rules
were adopted by the Department of Environment and Conservation, and were
approved by the legislature in 2013.
"Since then, our operators have been
able to go about business without too
much trouble," Laine notes. "There is
not a whole lot the environmentalists can
go after because the rules are in place
and they are not being broken."
Under the permitting rule, Ch. 040052, Sec. 02, 10, an approved completion
plan and public comment period are triggered when an operator intends to complete a well with more than 200,000 gallons of "water-based fluids."
In such an instance, the permit is held
for a 30-day public comment period. The
operator is required to notify all surface
owners within one-half mile of the wellhead, and provide water testing to any
resident who requests it.
"Until that point, the biggest frac job
we saw was on a test well that used
about 200,000 gallons," Laine observes.
"That is nothing compared with other areas, and since then, the chances of anybody
using that much water are very slim."
Raiding The Fund
TOGA's leadership also is concerned
about unwelcome access to the state's
well plugging fund by the legislature.
A lack of money in the well plugging
fund was highlighted in news reports from
Nashville in October. With an average
per well plugging cost of $3,000, according
to media reports, and the state spending
$500,000 annually to plug abandoned
wells, the plugging fund was running low.
APRIL 2017 107



American Oil and Gas Reporter - April 2017

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