American Oil and Gas Reporter - June 2017 - 111

ConventionSection: Kentucky Oil & Gas Association

Victory Over Proposed Fee
Shows KOGA's Value
By Del Torkelson

FRANKFORT, KY.-If there was an
upside to the close call over a fee directed
at operators, it was as yet another example
of what the Kentucky Oil & Gas Association does for the industry, reflects KOGA
Executive Director Matt Sawyers.
"This issue demonstrates the association's value in a dramatic way," he reflects
as the group prepares for its 81st Annual
Convention, scheduled for July 18-20 in
Lexington, Ky. "I have been citing the
old saying, 'If you are not at the table,
you are on the menu.' If we don't stand
together as an industry and speak with a
unified voice through our association,
we are going to be on the menu."
Oil and gas producers with wells in
Letcher County, Ky., appeared on the
menu this spring in the form of a proposed
business license fee for all extractive operations, says KOGA President Maurice
Royster. The association was notified
March 20 that county officials would
vote on an ordinance that would devastate
the local industry, he recounts. With the
proposal's fate ultimately to be decided
at a special meeting of the Letcher County
Fiscal Court within the next 21 days, he
says, KOGA sprang into action.
"Within that three-week window we
mobilized our membership. Through the
leadership of the executive committee,
legal committee, board members and
staff, we initiated a campaign that effectively communicated the industry's concerns to non-KOGA members, royalty
owners, free gas recipients and Letcher
County citizens," describes Royster, manager of government affairs for Kentucky
and Virginia at EQT Production in Johnson
City, Tn. "It was important that county
officials heard from their constituents
and realized how devastating this ordinance would be for the county as well as
the industry. Luckily, it came up one
vote short."
Empty Coffers
According to Sawyers, officials proposed the license fee because tax revenues
and economic activity associated with

coal production had plunged in the Southeast Kentucky locality. According to published reports, Letcher County JudgeExecutive Jim Ward estimated severance
tax revenues from coal production in the
rural county dropped from $2 million in
2011 to $637,000 in 2016.
"There is a sense of desperation in
some of these local governments. Some
county officials felt this was a way to
raise revenue without affecting very many
people and stirring up widespread push
back," Sawyers says.
Royster expresses sympathy with Ward
and emphasizes that he and his colleagues
who support the fee are not actually
against fossil fuels. "Judge Ward realizes
the importance of our industry to Letcher
County, and is aware of the revenue that
comes from severance and property taxes,"
Royster relates. "He simply is trying to
raise revenue to keep the county afloat."
That proposal appeared in an ordinance
that sought to impose a $2,500 fee on
each operation that extracted a nonrenewable resource. According to press accounts, Ward estimated the fee would
raise $3.7 million a year.
"Before its first reading at the March
20 meeting, Judge Ward was respectful
enough to call me and let me know this
was coming up," Royster says. "He was
not sure whether the ordinance would
pass, but he thought it would."

Principled And Pragmatic
KOGA objects to Letcher County's
proposal for a number of reasons, the
first of which is evenhandedness, Sawyers
indicates. Under such a discriminatory
regime, he points out, oil and gas producers
would shoulder an overwhelmingly disproportionate share of the burden. "The
1,500 oil and gas wells in the county
would pay more than 95 percent of the
fee," Sawyers projects. "The county tried
to eliminate its revenue shortfall on the
back on one industry."
"It is an issue of fairness," Royster
affirms. "We sympathize with the county
and its revenue difficulties, but to hang
that on only one industry not only is
unfair, it would have been the demise of

the industry in that county."
Royster says simply multiplying the
fee by the number of Letcher County
wells fails to consider the razor thin
margin at which most oil and gas wells
operate. "A $2,500 fee would make many
wells uneconomic, so producers would
plug them," he warns. "The county risked
cutting off the revenue stream from those
wells."
That was a major point Sawyers emphasized at the April meeting, he says:
Fewer operating wells mean fewer jobs,
less tax revenue and shrinking royalty
payments. "We already provide value to
the local economy and tax base, which
will suffer if the local industry is taxed
out of business," Sawyers reasons. "There
also was compelling testimony from people who benefit from the natural gas industry: mineral owners and free gas users,
who discussed their concerns about getting
hit in their pocketbooks if producers were
forced to plug wells."
Moreover, Royster suggests, other
local governments could have sought to
follow Letcher County's example. "Several, if not all, producing counties would
have tried to implement something similar," he predicts. Constitutionality was
the industry's trump card, he says, a point
KOGA was not afraid to make. "We met
face-to-face with county officials to make
sure they understood how serious we
were about this issue," Royster recalls.
"We told them the industry could not afford to accept a new, discriminatory tax
of this magnitude and would have no
choice but to fight it in court."
Sawyers says KOGA pointed out that
it was not going to solve the county's
revenue problems if no one paid the fee
and the issue ended up in litigation,
adding "We strongly believe the ordinance,
as written, is unconstitutional."
In the end, the vote on the ordinance
deadlocked 3-3, Sawyers reports. "We
narrowly averted defeat this go-round,"
he recounts. "Next time, we may not be
so lucky, so we must be vigilant and
make sure people understand the truly
positive impact our industry has on the
local economy."
JUNE 2017 111

American Oil and Gas Reporter - June 2017

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