Proposed legislation passed introduction in the State Senate last Friday that would cut the severance tax rate in half for petroleum and natural gas companies for a certain period of time. The reduction from 6 percent to 3 percent would take place during the project's third year until the end of its fourth.
Sponsors argue that, if taxes are lower, a company might decide to set up shop in Wyoming versus North Dakota. But Chuck Mason, chair in oil and gas economics at the University of Wyoming, said he doubts the bill would make much of a difference.
He said a similar bill was tried around 20 years ago and a colleague of his put together an analysis showing a severance tax cut would have little impact on new development.
"It’s difficult to believe that that’s going to tip somebody who was originally thinking I’m not going to drill in Wyoming, I’m going to drill in Colorado, Texas, or North Dakota,” Mason said.
He said severance taxes also aren’t a primary cost of doing business. Plus, by the third or fourth year of operations, the severance tax will already be lower given trends of production.
“We’re looking at a story where there’s probably, from both state and oil and gas producer’s perspective, the benefits are small and the costs are small,” Mason said.
The bill will be discussed in the Senate Revenue Committee on February 20 and then potentially move to be debated by the full Senate.