American Oil and Gas Reporter - April 2018 - 152

"Our limestones produce a waxy crude
oil that drops out of solution and plugs
the well's permeability," he observes.
"This has been a headache for our operators for a while. Once operators settle on
a solution to this paraffin issue, there is a
lot of crude oil left in our fields."
Bible adds that most Tennessee wells
are shallow and less expensive to drill
than deeper wells. "The trick is justifying
the added cost of managing the paraffin,"
he says.
Laine predicts that a stronger price
this year will result in more activity in
Tennessee's oil patch. "Most operators
say we have to get to $70 a barrel before
we will see any movement," he comments.
"It is getting close and we may see some
activity in the second half of the year.
"There is a company doing some work
in Overton County, Tn., Laine points out.
"It kept drilling right through the depressed
price cycle and had success."
He is referring to privately held Hornet
Corp., based in Hendersonville, Tn.
Over the past year, Hornet announced
the move of its company headquarters to a
building in Hendersonville and the acquisition of what it described as highly productive leases in Kentucky and Tennessee.
Hornet says it acquired the Wayne Brown
lease, a more than 240-acre tract in Overton
County that includes the former Brown
No. 3 well, which was cited as the most
productive well ever drilled in Tennessee
before it was plugged a decade ago.
"The Brown No. 3 did not penetrate
Middle Ordovician Murfreesboro and
Wells Creek formations, nor the lower
Ordovician Knoxville Dolomite, which
have been large producing formations
for wells in the Miller Mountain Oil
field," said G.A. Murrell, president of
Hornet in announcing the acquisition.
"One of the reasons we acquired the
Brown lease is that the producing formations in this lease are stacked, just like in
the Permian Basin," Murrell added.
According to the company, the Brown
lease and the Miller Mountain Oil Field lie
to the south of some of the company's
recent oil discoveries, including the Donnie
Ray No. 1 and the T.J. Hensley Unit No. 1.
TOGA recognized Murrell with its
Muddy Boots Award in 2015 for Hornet's
successful drilling program in 2014, and
particularly the Donnie Ray No. 1, cited
as best well in the state that year by the
Tennessee Department of Environment &
Conservation (AOGR, July 2015, pg. 166).
Severance Tax
One of the TOGA's top priorities for
the 2018 Tennessee legislative session is
reallocating severance tax revenue, Laine
says. "We believe 100 percent of the sev-

erance tax money collected should go to
the counties from which the production
comes," he says.
Currently, one-third of severance tax
revenue is returned to producing counties
and the remainder goes into the state
general fund, he notes.
"The amount collected-about $450,000
a year-is not a big deal to a state with a
$38 billion budget, but it means a lot to
those counties, some of which are on the
lowest rung of the economic ladder,"
Laine observes.
While the amount of severance taxes
collected may be considered a drop in
the bucket, a fiscal note attached to legislation last year was enough to have it
referred to a committee, where it languished, according to Roxanne Reiley,
vice president at Laine Communications.
"It is an issue our members feel strongly
about," she says. "That additional revenue
would impact counties in a positive way
and allow our members to be better community partners."
Reiley notes that this year, the bill
will be revised to include a three- to
four-year phase in. "We are taking a page
from how Governor (Bill) Haslam was
able to get his gasoline tax increase
passed," Reiley remarks.
Fuels Tax Hike
Reiley is referring to a bill Governor
Haslam supported in 2017 that raised the
excise tax on motor fuels with additional
increases coming in 2018 and 2019. The
bill was approved in March 2017.
Known as the IMPROVE Act, the tax
increase will help fund a program, that
according to published reports, will spend
$10 billion on a backlog of infrastructure
projects in all 95 Tennessee counties.
The state's gasoline tax increased 4.0
cents a gallon to 25.4 cents in July, and is
scheduled to increase by 1.0 cents in 2018
and again in 2019. The tax on diesel fuel
also was increased, according to the reports.
In July 2017, the diesel tax went up 4.0
cents a gallon to 22.4 cents, and is to increase
by another 4.0 cents this year and next.
The IMPROVE Act allocates more than
$350 million for state, county and municipal
road projects and, published reports note,
is intended to provide sufficient funding
so local governments do not have to use
other means, such as increasing property
taxes, to pay for improvements.
The act also lowers the state sales tax
on food to 4.0 percent from 5.0 percent,
and orders a $5.00 increase in passenger
vehicle registration fees, a $100 increase
in electric vehicle registration, and a 3.0cent a gallon increase in the excise tax
on liquefied and compressed natural gas
used as motor fuel.

152 THE AMERICAN OIL & GAS REPORTER

The act cuts the state's manufacturing
excise and franchise taxes, and phases
out over four years the state tax on interest
and dividends, both of which are intended
to boost economic activity, published reports note.
"Since Tennessee does not have a personal income tax, everything runs on
sales taxes, which are some of the highest
in the country," Reiley says. "Tourism is
a very important source of revenue, so
the governor wanted to lower the burden
on citizens while still providing revenue
to run the state."
Passing Grade
Governor Haslam, a Republican, is
term limited and due to leave office next
year. Laine describes him as a centrist
who has led Tennessee to become one of
the best fiscally-managed states in the
country.
"Governor Haslam is one of the most
popular governors in Tennessee history,"
Laine declares. "He has done some unique
things, such as providing free tuition for
students in community colleges and technical schools. He found a way to lower
taxes in every session and restored the
state's AAA bond rating. He increased
state services while reducing the size of
state government and found a way to
raise teacher salaries."
Laine concludes that although the oil
and gas industry expected more from a
scion of the family that owns Pilot Corp.,
which operates the largest chain of truck
stops in the country, Governor Haslam
did not hurt the industry during a period
when many states were increasing regulatory burdens on operators.
On the political front, Laine says he
expects 2018 to be a busy year with elections for governor, U.S. senator, and four
seats in Congress up for grabs. "We will
keep an eye on how things shake out, but
the association does not endorse any candidate until after the primaries," he adds.
Well Bonding
With both houses of the Tennessee
Legislature under a Republican supermajority, Reiley says TOGA is able to
promote an agenda that is mostly "for"
rather than "against."
Following legislation to reallocate severance taxes, she says, TOGA's second
priority is realigning the state's well bonding structure.
TOGA supports revising the section
of Tennessee's financial assurance requirements that applies when an operator
turns over ownership of a well to the
landowner. Currently, the landowner is
required to post a plugging bond of $500.
Reiley says TOGA supports increasing



American Oil and Gas Reporter - April 2018

Table of Contents for the Digital Edition of American Oil and Gas Reporter - April 2018

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