In this week’s news update, Pennsylvania's governor plans a high severance tax on shale wells, and the service company merger will not go forward.
Oilfield service companies Halliburton and Baker Hughes announced the termination of their $28 billion merger deal after facing growing opposition from antitrust regulators. The proposed merger would have combined the world’s No. 2 and No. 3 oil service providers, which led to concerns that the deal would result in higher prices.
“Challenges in obtaining remaining regulatory approvals and general industry conditions that severely damaged deal economics led to the conclusion that termination is the best course of action," says Dave Lesar, chief executive of Halliburton, in a statement.
Severance Tax Proposed in Pennsylvania Among Highest in Nation
Pennsylvania Gov. Tom Wolf has proposed a severance tax that would be among the highest in the nation and could result in a decline in shale gas drilling in the state.
The state’s Independent Fiscal Office analyzed the latest tax proposal, which would be essentially an 8.5 percent tax over the life of a typical shale gas well. Factoring in credits to wells that have paid impact fees, the tax would amount to a 6.5 percent tax on the market value of extracted gas once credits are applied. The analysis also predicted an 8 percent decline in production if the tax is enacted, based on gas companies’ responses.