Columns » Ernest Dumas

The cost of gas tax



When Governor Beebe persuaded the big gas producers last year to accept a hike in the production tax to raise a little money for Arkansas's poor roads, the gas companies extracted some serious concessions from the state.

The big one was that they wouldn't have to pay the 5 percent severance tax on much of the gas they produced for several years, but we're only now beginning to grasp the full price that the state must pay for the little tax.

The legislature is making amends to the production industry in your behalf by altering the regulatory laws so that they are much more favorable to the industry. If you thought that they couldn't possibly be made any more favorable than they already were, you were wrong.

This week, a little bill that once and for all ends gas producers' fiduciary duties to land and mineral owners will quietly take its place in the statutes. It was introduced March 9, got a sendoff from the always amenable Insurance and Commerce Committee two days later, passed the House of Representatives 90-2 the next day and went to a Senate committee, all with virtually no public notice and no significant debate. It should reach the governor's desk before the week is out. Late in a legislative session, when skepticism and even curiosity are exhausted, is the time to introduce bills like HB 2247.

It doesn't have to be sneaky either. The second sentence of the bill says it: “A mineral lessee under an oil and gas lease does not owe a fiduciary duty or a fiduciary obligation to the mineral lessor.”

Almost nine years ago, the Arkansas Supreme Court upheld a $109 million judgment against Southwestern Energy Co., a big producer now in the Fayetteville shale play, because it had not looked out for the best interests of thousands of royalty owners in the gas fields when it was trading gas with its sister distribution company, Arkansas Western Gas Co. HB 2247 when it becomes law won't recover the company's $109 million, but it promises that companies will never face that obligation again.

That is the story for the whole legislative session.

A Republican from Beebe introduced a bill saying that a pipeline company could not use the government's eminent domain power to build a gathering line but rather had to negotiate with landowners for easements across their land. The big gas produces avoid state regulation but get to use the government's eminent domain prerogative. A Senate committee killed the bill.

A bill giving city and county governments bothered by the degradation of their communities some say before the state Department of Environmental Quality gives the industry permits for disposing of drilling wastes suffered the same fate.

A bill requiring a majority of the members of the state Oil and Gas Commission to be experienced in the oil and gas business, which assures industry control of the commission, sailed through both houses and Governor Beebe quickly signed it into law.

A bill that would allow counties in the shale play to assess a fee of up to $5 a load of drilling waste to help them pay for the heavy damage to county roads from the drilling activity has languished in the Senate.

HB 2247 disposes of an onus that the industry has borne since at least 2000, when the Supreme Court unanimously said that a producer had a covenant with royalty owners to get the best price available for the gas it acquired from them. It implied that the gas companies had a duty to look out for the interests of the tens of thousands of mineral lessors who have little way to protect themselves.

The dispute had bounced around the courts for 20 years and reached the Supreme Court four times, the last one after a jury in Sebastian County found that the sister subsidiaries had broken a 20-year contract and manipulated gas prices to help the distribution company and thus deprived 7,000 mineral owners of $62 million, which together with interest and punitive damages came to a judgment of $109 million.

Southwestern Energy maintained that it simply had to follow the “prudent operator” standard, which says a company is obligated merely to do what any prudent company would do in the circumstances to maximize its own profits while looking out for mineral lessors as well as it could.

The bill says it is necessary to straighten out this relationship with royalty owners so that producers will start to develop the state's natural resources.

There is no evidence that it was holding them back.               


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