Depletion & Pepperoni Rolls - West Virginia Strong

Depletion & Pepperoni Rolls

Morsels Of Truth

The state of West Virginia will pay $950 million this year to insure public employees through the Public Employee’s Insurance Agency (PEIA). That rate is projected to go up 5 or 6 percent every year. That’s an additional 50 or 60 million dollars a year, but of course that amount will rise. I’m not supposed to do math in public, but, near as I can figure, if the premiums go up 5% every year, than the state will be paying $2 billion dollars in a couple of decades.

Would you want to write that check?

$2 billion is a lot of money. $2,000,000,000 is what it looks like fully accessorized.

To put $2 billion dollars into a perspective I know myself and my fellow Mountaineers will understand, consider these ideas. No way $2 billion would fit in the back of my truck. If the Powerball got up to $2 billion your coffee would be cold and they’d be out of pepperoni rolls by time you got to the counter of any gas station in West Virginia on a Wednesday or Saturday.

Paying for health insurance costs the State of West Virginia a lot of money. The State government passes some of that expense along to its employees by asking them to pay a percentage of their care. I don’t expect the state government to pay all of the health care costs of their 200 thousand employees. I think it is fair to pass some of those costs along. But is there a way the state could generate more income to help pay PEIA premiums?

I get tired of hearing West Virginia is 49th or 50th in many sectors. But we are in the Top 10 in at least one thing. West Virginia is the 9th largest natural-gas producing state in the nation. If there was an NCAA natural-gas tourney, we’d be at least a #3 seed. Maybe a #2 if we work on our second-half defense.

West Virginia has a reported 19 trillion cubic feet in shale gas reserves. West Virginia produces more natural gas than it burns, so we ship it out all over the country, and world. The gas companies that operate in West Virginia make a considerable profit.
A warning to sensitive readers- The next paragraph is very boring but necessary. Readers shouldn’t drink alcohol or take sleep medication before consuming the next paragraph.

The state of West Virginia charges a tax, called a severance tax, on the sale of gas produced in West Virginia. West Virginia has a 5% severance tax and received $97 million from gas companies in 2017. The amount of tax the state collects fluctuates because it is based on the price of natural gas. The amount of money the state collects has gone down in recent years even though production has gone up because as production goes up, prices fall.

Told you it was boring. I worked for hours just on that paragraph to make it as short and precise as possible to keep you from suffering. Now you can take a drink

If the gas companies are paying almost $100 million in taxes, than they are selling almost $2 billion worth of gas. If you take $100 million out of $2 billion, it still wouldn’t fit in the back of my truck. If the lottery only got up to $1.9 billion, you’d still starve to death waiting to buy a ticket.

The WV Center on Budget and Policy projects that if the state increased its severance tax to 7.5% the state would get an additional $93 million in 2019.

An April 16 article on notes that Ohio and Pennsylvania have severance taxes on natural gas that amount to about 1.3%. The author makes the point that if West Virginia increases their tax to 7.5%, or 10%, companies might stop drilling in West Virginia.

This argument can be summed up by a variation of the old playground threat. “If you charge us more, we’ll take our drills and go home."

The article makes the stunning observation that once you start drilling the gas, the amount of gas underground decreases. “Natural gas production involves a factor known as depletion. Once drilled and put into production, the volume of gas produced from a well begins to decline… The balance of the gas… produced…will gradually decline to virtually no production over a period of several years.”

The author makes it sound like some mysterious process takes place. Like the gas just disappears. I’m no drilling expert, but I think what happens is that the gas companies pump the gas out of the ground, feed it into a pipeline, sell it, and make money.
Some members of the West Virginia legislature may be scared to raise the severance tax because they don’t want to upset the gas companies. There is some suspicion that the gas companies help fund their campaigns.

If the Legislature increased the severance tax to 7.5%, then the state could afford to pay the PEIA premiums. And the gas companies would still be making a lot of money.

What we need is legislators who tell the gas companies to pay up. If those companies threaten to leave the state, call the bluff. They aren’t going to leave. And what if they do?

West Virginia is the 9th largest gas producing state in the nation. If the gas companies take their drills and go home they aren’t going to quit drilling altogether. They are going to drill in other states. When they drill elsewhere, the mysterious process of depletion is going to take place. Before long, all the gas in other places will be gone and West Virginia will be sitting on 19 trillion cubic feet of shale gas.

The demand for natural gas is going to increase. Not deplete. When the gas companies run out of gas in other states West Virginia will be the #1 state. The gas companies will come crawling back and we can charge 50% in severance taxes.

Bil Lepp is a nationally renowned storyteller and a PEN Award winning author. To see more of Bil's WV Strong content click here.

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