Arkansas severance tax revenue falls almost 55% in May report

Arkansas severance tax collections fell more than 50% in May from year ago levels as the state’s rig count plummeted to single digits and drilling crews are leaving the state for other richer wet shale plays across the U.S., according to state severance tax and employment data and industry reports.

That has left state tax revenue for natural gas production at just over $4 million in May, down 54.5% from $8.8 million a year ago, according to monthly tax data compiled by the Revenue Division of the Arkansas Department of Finance & Administration.

Earlier in the week, the state Department of Workforce Services (DWS) reported employment in the mining sector that comprises the oil and gas industry had lost more than 400 jobs over the past year. That total is slightly ahead of the 230 jobs that DWS predicted the natural resources and mining sector would lose in 2015 in its annual Labor Market and Economic Report.

Additionally, oil and gas industry reports and data show that drilling crews from dry gas plays like the Arkansas Fayetteville and Barnett shales are migrating to more prolific wet shale plays that produce crude oil and natural gas liquids. For instance, Fayetteville Shale leader Southwestern Energy placed a total of 35 new wells into production at its newly acquired properties in the Northeast and Southwest Appalachian regions located primarily in Pennsylvania’s Marcellus shale play, one of the nation’s largest exporters of liquid natural gas.

Baker Hughes also reported last week that Arkansas’ rig count has fallen to its lowest level in more than a decade. The number of rigs operating in Arkansas as of June 19 is down to only five, a level not seen since the week of May 5, 2005. A year ago, there were 11 rigs actively drilling for oil and gas across the state of Arkansas.

According to state revenue officials, severance tax amounts reported by the state’s Revenue Office are based on the “revenue month, not the report month.” For example, tax payments received in July may not be due until August.

In 2009, the Arkansas Legislature raised the levy on natural gas production, applying tax rates of 1.25%, 1.5%, and 5% depending on the well classification by the Arkansas Oil and Gas Commission.

Officially, the fiscal year for the state of Arkansas begins on July 1 and ends on June 30. In fiscal year 2014, the highest monthly severance tax collection occurred in April, when state severance tax coffers brought in $9.1 million. The highest total in fiscal 2015 came in March when the state collected nearly $8.7 million in revenue on natural gas sales.

In fiscal year 2014, collections had state tax coffers brimming as severance tax revenues rose to their highest level ever since the state began keeping such records at $77.6 million. Through the first 11 months of the fiscal year, revenues for natural gas taxes total $69.5 million.

According to DFA’s severance data, tax collections were on a pace to top year ago levels through the first six months of fiscal 2015, but have since dropped off precipitously over the second half of the year. That drop-off coincides with announcements by Southwestern Energy and other drillers earlier in the year of plans to substantially cut spending in the unconventional Arkansas dry natural gas play. In March, Southwestern Energy announced it was slashing 40% of its investment in the unconventional Arkansas shale play. Australian mining conglomerate BHP Billiton has also cut its budget in the Arkansas shale play to only $100 million – a fraction of its original spending plans when it bought those assets for $4.75 billion in 2011.