Sheffield Nelson thinks XTO Energy (a subsidiary of Exxon) and Southwestern Energy, two publicly traded companies that are drilling for natural gas in Arkansas, have violated Securities and Exchange Commission rules by talking about the negative impact of a severance tax increase on their work in Arkansas.
Nelson, who is leading an initiative campaign for a gas severance tax increase, today sent a letter to Mary Shapiro, chair of the SEC, outlining his argument: Through their donations to an anti-severance tax group (Southwestern, XTO and the private Stephens Production have contributed together more than $1.5 million), these companies have knowingly disseminated false information – that they will pull out of Arkansas and jobs will be lost, should the severance tax pass. Nelson contends it violates securities rules to disseminate such relevant business information only in Arkansas, rather than to the public generally.
XTO and Southwestern have donated $950,000 of the $1.6 million total contributions received by the anti-severance group, Arkansans for Jobs and Affordable Energy. This group, spearheaded by Randy Zook, president of the Arkansas State Chamber of Commerce, is behind the Stop the Gas Tax campaign.
In Feb. 2012, in a public letter seeking contributions, Zook writes, “This industry plays a vital role in our state’s future economic development, and a tax increase would no doubt jeopardize jobs we’ve come to count on, as well as the potential for continued growth.” Other materials say, “this gas increase is a job killer, let’s keep those high paying jobs here, keep Arkansas competitive.” A study commissioned by the Conway Chamber of Commerce found that Arkansas would lose 8,300 jobs if the severance tax passes.
According to Nelson, these statements, made indirectly in behalf of XTO and Southwestern by a campaign they are financing, are scare-mongering, the equivalent of telling the public that these companies will leave the state if they have to pay more taxes. And, he maintains, that is simply not the case. In February, Southwestern released its 2011 financials, which indicated that the company invested over three times as much capital in Arkansas than in any other state – a commitment it is unlikely to walk away from, Nelson contends.
Neither Southwestern or XTO have ever mentioned Arkansas’s potential severance tax in public SEC filings, said Nelson. If this tax was a material financial issue, Nelson said, they would have to file notice with financial regulators.
Arkansas Times asked XTO for it's reaction to Nelson's S.E.C. complaint, and we received this statement via email: "We don't believe this current debate over a proposal to increase the severance tax merits an SEC filing. If enacted, a significant severance tax increase would impact our costs to drill in Arkansas, and such costs will be taken into account when making future investment decisions."
We've sought a comment from the group opposing the tax increase. In an earlier exchange with a related group opposing the tax, a spokesman told Max Brantley that predictions of a negative impact on drilling activity were not the same thing as a decision to withdraw from the state.
UPDATE FOLLOWS FROM LUCAS HARGRAVES OF THE ANTI-TAX GROUP:
I can only speak for Arkansans for Jobs and Affordable Energy, but we stand by what we’ve said all along: a severance tax increase will put thousands of Arkansas natural gas jobs at risk. Will it totally halt production? No. Will it hurt our ability to compete with surrounding states, sending many jobs and new investment other places? Absolutely.
Unfortunately, Mr. Nelson’s letter is just the latest example of the wild accusations he’s thrown around since the beginning of this campaign. While he’s busy making baseless claims, we have been focused on making sure Arkansans get the facts about natural gas production and the harmful impact this tax increase would have on our economy. The facts speak for themselves.
Nelson said afterward that he'd ejected someone asking critical questions at his news conference who claimed to be a blogger but who'd been present filming and asking loaded questions at a previous session. Nelson said the man wasn't regular press and Nelson told him he'd have him removed if he didn't leave. Interesting. It wouldn't be surprising to learn he was an anti-tax group worker. They've been shadowing petition canvassers and also, Nelson said, cut loose robocalls on mayors who'd spoken in favor the tax proposal at a recent Municipal League convention.
In his letter, Nelson recommends remedial action – the companies should either notify all shareholders of their intention regarding a potential Arkansas severance tax, or they should correct the “misimpression they have intentionally created here…to provide sufficient assurances to the shareholders in this state that they will not be leaving the billions of in dollars they have invested here.”
Anybody can write a letter to the SEC, of course, but Nelson is the former CEO of Arkla Gas, which developed gas reserves and sold gas at retail to Arkansas customers. But it remains true that a tax increase, a small percentage of the cost of gas production, is unlikely to force a shutdown in highly productive Arkansas fields. Nelson's regular press conferences have become something of an irritant to the gas industry and business supporters.
Nelson reiterated this morning that he's confident the petition drive will gain sufficient signatures to qualify for the ballot. Don Zimmerman, director of the Arkansas Municipal League, a key player in Nelson's coalition, said the same thing to the Times last week after the League expressed again its support for the measure, despite heavy lobbying by the industry and chamber to back off. The proposal would raise the maximum tax rate from 5 to 7 percent of the cost of the gas. The effective rate currently can be much lower because of exemptions for certain types of wells.
A copy of Nelson's letter to Shapiro is here: SEC_file.pdf