The following is a release from the Independent oil & Gas Association of New York (IOGA-NY):

Reject the Natural Gas Production Tax! Act Now!

Reject the Natural Gas Production Tax!
Take Action!

Act Now!

Governor Paterson has recently proposed legislation to impose a new production tax on natural gas. This proposal is detrimental to upstate New York's economy, and there is already a real property-based production tax on the existing 14,000 natural gas wells in New York. Under the existing ad valorem tax, this revenue stays in local communities, instead of going to state coffers in Albany. Although the Governor's proposal aims to protect lower-volume producers (under 50,000 ,mcf), the proposal would still adversely impact producers with low production wells. As a result, many natural gas companies could be driven out of business, harming our cities and towns and creating another roadblock to economic progress and energy independence.

To illustrate, please consider the following:
• The most common type of gas well in New York is a Medina Sandstone well.
• An average producing Medina well currently costs $275,000 to drill, and it returns approximately 75,000 mcf (thousand cubic feet) over an average productive life of 25 years.
• If gas operators receive about $5 for every mcf produced, then at that price, an operator would generate $375,000 in gross revenue over 25 years.
• After deducting average production costs of $3,000 per year over 25 years ($75,000), this gross yield is reduced to $300,000.
• In addition, once you deduct the 12.5% landowner royalty, a typical well yields $262,500. (This royalty money would also be lost to the landowner if these wells are no longer economically feasible to drill.)
• Then, once you factor in transportation costs, landowner gas, taxes, wellsite reclamation and overhead, a typical Medina well yields less revenue than it cost to drill, complete and produce over that 25-year period.

Given these extremely marginal economics, any increase in the operator's tax burden is a recipe for disaster, and there are numerous New York State oil and gas companies still dependent upon Medina gas drilling and the natural gas these wells produce. During this time of economic crisis, we all can appreciate the financial crisis our State faces, but driving out an industry that can help upstate New York get through this time of hardship is a tremendous mistake.