Capítulo IV. Resultados
Apéndice 3. Expediente de validación del instrumento de investigación
Severance taxes, collected by the Arkansas Department of Finance & Administration for the last five years, are presented in Figure 21. The taxes are divided into the following categories: sand and gravel, oil, gas, and other severance taxes. From 2004 to 2008, both the sand and gravel and other categories experienced negative growth of 1.7 and 5.9 percent, respectively.
However, severance tax collections in the oil and gas categories increased by 134.3 and 133.9 percent during the same period, respectively. It is due to oil and gas industry activities that total severance tax revenues increased by 107.5 percent from 2004 to 2008.
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From 2004 to 2009, taxes in the oil category accounted for 76.6 to 86.5 percent of total severance tax collections. In 2009 (the data covers January through June period) taxes in the gas category increased dramatically and taxes in oil category accounted for only 29.5 percent.
This is a result of the changed severance tax rate for natural gas where the revenues have been earmarked to benefit the state's roads.
Arkansas previously collected only three-tenths of a cent per thousand cubic feet (MCF) of gas produced, a rate unchanged for more than half a century. The new tax collects up to 5.0 percent of the price of natural gas based on the first sale, but includes grace periods and lower rates for hard-to-develop wells. The new tax rates went into effect on January 1, 2009, but because the gas companies have two months to remit the tax, only four months' worth was collected at the higher rate by the time the fiscal year ended on June 30. The severance tax collected in the natural gas category for the first half of 2009 was $13.6 million, a huge increase over the $1.2 million collected during calendar year 2008. However, natural gas collections were well below the $18.8 million that had been forecast by the Arkansas Department of Finance & Administration, due to the unforeseen dramatic decline in gas prices, and hence market value. Total severance tax collections for the first half of 2009 were $20.6 million, as compared with total collections of $27.1 million for calendar year 2008.
Figure 21: Arkansas Severance Tax Collections by Category, 2004 - 2009
$0.0
2004 2005 2006 2007 2008 2009 YTD
Millions of Dollars
Arkansas Severance Tax Collections by Category
Sand & Gravel Oil Gas Other Category Source: Arkansas Department
of Finance & Administration
Severance taxes collected in oil and gas producing counties are presented in Figure 22. Data by county are not available for 2009, so only data from 2004 to 2008 are included. Oil producing counties are defined as the ten counties in the southern region of the state: Ashley, Bradley, Calhoun, Columbia, Hempstead, Lafayette, Miller, Nevada, Ouachita, and Union. Counties producing gas are those located in Arkoma basin and Fayetteville Shale formation (based on their severance tax collections in the gas category from 2008): Cleburne, Conway, Crawford, Faulkner, Franklin, Johnson, Logan, Pope, Scott, Sebastian, Van Buren, White, and Yell.
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Figure 22: Severance Tax Collections in Oil and Gas Producing Counties, 2004 - 20083
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
2004 2005 2006 2007 2008
Millions of Dollars
Severance Tax Collections in Oil and Gas Producing Counties
Arkansas Oil Producing Counties Gas Producing Counties Source: Arkansas Department of
Finance & Administration, CBER
Overall, oil and gas producing counties (defined above) were responsible for 89.4 percent of total state severance taxes collections in 2004 and for 95.0 percent of all severance tax revenues is 2008 (see Table 7).
3 Oil producing counties include: Ashley, Bradley, Calhoun, Columbia, Hempstead, Lafayette, Miller, Nevada, Ouachita, and Union. Counties producing gas are based on their severance tax collections in gas category from 2008: Cleburne, Conway, Crawford, Faulkner, Franklin, Johnson, Logan, Pope, Scott, Sebastian, Van Buren, White, and Yell.
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Table 7: Arkansas Severance Tax Collections in Oil and Gas Producing Counties by Category, Share of Arkansas Total, 2004 and 20084
Year/Counties Oil Category Gas Category Total Severance
Taxes
2004
Oil Producing Counties 97.7% 6.1% 80.6%
Gas Producing Counties 2.3% 93.7% 8.8%
Arkansas All Counties 100.0% 100.0% 100.0%
2008
Oil Producing Counties 100.0% 1.4% 88.9%
Gas Producing Counties 0.0% 98.3% 6.1%
Arkansas All Counties 100.0% 100.0% 100.0%
The importance of gas producing counties soared after the tax rate for produced and sold gas was increased on January 1, 2009. Although 2009 data with new tax rate are not yet available by county, the total amount of taxes collected in the gas category increased dramatically compared to previous years. Assuming that gas producing counties continued to account for 98.3 percent of total state gas revenues, almost $13.4 million of gas taxes were generated in these counties so far in 2009. This alone accounts for 64.9 percent out of total severance taxes collected from January to June 2009 in Arkansas – a remarkable increase from the share of gas producing counties out of state severance tax collections in 2008, which was 6.1 percent.
4 Oil producing counties include: Ashley, Bradley, Calhoun, Columbia, Hempstead, Lafayette, Miller, Nevada, Ouachita, and Union. Counties producing gas are based on their severance tax collections in gas category from 2008: Cleburne, Conway, Crawford, Faulkner, Franklin, Johnson, Logan, Pope, Scott, Sebastian, Van Buren, White, and Yell.
31 1.5.3 STATE AND LOCAL TAXABLE SALES
Based on sales tax data and tax rates from the Arkansas Department of Finance &
Administration, taxable sales were calculated in this section. Arkansas taxable sales for the last five years are presented in Figure 23. During 2004, 2005, and 2006, taxable sales increased at annual growth rates of 5.6, 8.9, and 5.8 percent, respectively. The trend, however, changed with the onset of the national economic downturn. In 2007 and 2008, taxable sales in Arkansas declined by 3.3 and 5.5 percent, respectively.
Figure 23: Arkansas Taxable Sales, 2004 - 2009
$2.2
$2.4
$2.6
$2.8
$3.0
$3.2
$3.4
Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09
Billions of Dollars
Arkansas Taxable Sales
Source: Arkansas Department of Finance & Administration, CBER calculations
The declining trend in taxable sales was not experienced, on average, by the counties where oil and gas is produced (see Figure 24). The ten counties in Arkansas that produce oil in the southern region of the state have seen increasing taxable sales from 2005 to 2008. In fact, taxable sales in these counties increased annually by 6.9, 4.5, 5.9, and 8.8 percent. The thirteen Arkansas gas-producing counties, located in the Arkoma basin and Fayetteville Shale formation, also experienced increases from 2004 to 2007. Taxable sales in the gas-producing counties increased annually by 4.4, 12.0, 7.1, and 1.6 percent during this period. In 2008, however, taxable sales in gas-producing counties were basically flat compared to 2007 numbers. Still, even with no taxable sales growth in the gas-producing counties, the economic activity significantly outpaced the 5.5 percent decline seen at the state level.
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Figure 24: Taxable Sales in Oil and Gas Producing Counties, 2004 - 20095
$0.0
Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09
Millions of Dollars
Taxable Sales in Oil and Gas Producing Counties
Oil Producing Counties Gas Producing Counties Source: Arkansas Department of
Finance & Administration, CBER
2. ENERGY PRICES AND PRICE INDICES
The pace and magnitude of future development of the Arkansas oil and gas industry depends considerably on prices. Therefore, the following chapter presents historical oil and gas prices in the United States and Arkansas, as well as futures prices time series. Additionally, an overview of consumer and producer price indices (including energy and oil and gas extraction industry indices) is offered at the end of the chapter.
2.1 OIL AND NATURAL GAS PRICES AND FUTURES
Wellhead prices for natural gas are reported by the Energy Information Administration (EIA) in its monthly publications after the final production and price data are received by the organization. Figure 25 presents wellhead natural gas prices since 2004. From 2004 to 2009, the wellhead prices of natural gas varied substantially. Prices experienced two peaks, reaching
$10.33 per MCF (thousand cubic feet) in October 2005 and increasing up to $10.82 per MCF in June 2008. During the first half of 2009, wellhead gas prices experienced severe declines down to $3.43 per MCF in April.
5 Oil producing counties include: Ashley, Bradley, Calhoun, Columbia, Hempstead, Lafayette, Miller, Nevada, Ouachita, and Union. Counties producing gas are based on their severance tax collections in gas category from 2008: Cleburne, Conway, Crawford, Faulkner, Franklin, Johnson, Logan, Pope, Scott, Sebastian, Van Buren, White, and Yell.
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Figure 25: U.S. Wellhead Natural Gas Price, 2004 - 2009
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09
U.S. Wellhead Natural Gas Price (Dollars per MCF)
Source: U.S. Department of Energy, Energy Information Administration
The wellhead gas prices can be compared with delivered prices, such as Henry Hub spot prices.
Several publications report prices daily at Henry Hub, the largest centralized point for natural gas trading in the United States. The relationship between the Henry Hub spot prices and United States wellhead prices has been explored in several papers. The EIA analysis "U.S.
Natural Gas Markets: Relationship between Henry Hub Spot Prices and United Wellhead Prices"
examined the relationship between these two series and the results indicated that there is a strong linear relationship between the two price series. For the researched period from August 1996 through December 2000, the correlation coefficient for Henry Hub spot prices and United States wellhead prices was 0.975.
As of August, 24, 2009, oil prices were the following: Dated Brent Spot was $73.95 per barrel and NYMEX Crude Future was $74.51 per barrel. Meanwhile, natural gas prices were: Henry Hub Spot at $2.78 per MMBTU (million British thermal units) and NYMEX Henry Hub Future at
$2.85 per MMBTU.
Looking at the Henry Hub natural gas prices shown in Figure 26, the relationship to wellhead prices is clear. Henry Hub prices also experienced two peaks: in October 2005 and June 2008.
From 2004 to 2009, prices averaged around $7.10 per million BTU. After reaching $12.69 in the middle of 2008, Henry Hub price started to decline and continue to do so, with the recent low price being $3.39 per million BTU in July 2009.
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Figure 26: Natural Gas Price, Henry Hub, LA, 2004 - 2009
$0.00
Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
Natural Gas Price: Henry Hub, LA (Dollars per Million BTU)
Source: Dow Jones & Company
Sustained high natural gas prices encourage additional exploration and production. Indeed, below some minimum threshold of prices, the economics on existing wells do not make sense.
Since 2005, prices have generally been above $6, but declined to lower levels since December 2008 and the most severe months of the latest recession. Figure 27 presents NYMEX natural gas futures price data from January 5, 2004 to August 18, 2009. Prices have generally been above $6 since 2005, but declined to lower levels since December 2008, reaching $4 and even
$3 levels this year.
Figure 27: Natural Gas NYMEX Futures Prices, 2004 - 2009
$0.00
Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
Natural Gas NYMEX Futures Prices (Dollars per Million BTU)
Source: U.S. Department of Energy, Energy Information Administration
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Figure 28 shows natural gas prices in Arkansas based on customer category. Prices in the residential sector have visible seasonality, averaging about $15.84 from 2004 to 2009. Both the commercial and industrial sectors experienced less price variability, having average prices of
$10.91 and $9.84 during the same period, respectively. In 2009, the price trend has changed, with a decline instead of the usual seasonal increase in April within all sectors. According to the May 2009 data, the latest available, natural gas prices declined compared to the last year prices substantially.
Figure 28: Arkansas Natural Gas Prices, 2005 - 2009
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09
Arkansas Natural Gas Price ($/Thousand Cubic Feet)
Residential Commercial Industrial Source: U.S. Department of Energy,
Energy Information Administration
Oil prices and natural gas prices do not necessarily move together, as they experience different underlying supply and demand. Like natural gas prices, crude oil prices also experienced a peak in June 2008, followed by a sharp decline. Figure 29 presents West Texas Intermediate oil spot prices from 2004 to 2009. During this period, prices averaged about $65.71 per barrel.
However, unlike natural gas prices, oil prices increased in 2009, reaching the levels previously seen in the summer of 2007.
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Figure 29: Oil Spot Price, West Texas Intermediate, 2004 - 2009
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
Spot Oil Price: West Texas Intermediate (Dollars per Barrel)
Source: Dow Jones & Company
2.2 CONSUMER AND PRODUCER PRICE INDICES
Consumer and producer price indices in the energy category reflect oil and gas price behavior.
As Figure 30 shows, the consumer price index for all items increased steadily during the last five years. Meanwhile, the consumer price index for energy goods varied substantially, peaking in the middle of 2008, followed by a sharp decline. During 2009, however, the energy index has increased steadily, at a higher growth rate than for the consumer price index for all items.
Figure 30: Consumer Price Indices, 2004 - 2009
0 50 100 150 200 250 300
Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09
Consumer Price Indices
All Items Energy Source: Bureau of Labor Statistics
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As with the consumer price index for all items, the producer price index for finished goods increased steadily during the last five years (see Figure 31). The producer price index experienced an increase in the middle of 2008, followed by a decline. The increase and the subsequent decline were proportionally larger for the finished energy goods index and much more so for the oil and gas extraction producer price index. During 2009, both the finished energy goods and oil and gas extraction indices increased again. However, the indices continued to be at significantly lower levels than those seen before the peak in the middle of 2008.
Figure 31: Producer Price Indices, 2004 - 2009
0
Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09
Producer Price Indices
Finished Goods Finished Energy Goods Oil and Gas Extraction Source: Bureau of Labor Statistics
3. U.S. OIL AND GAS INDUSTRY OVERVIEW
To provide context for the state of the Arkansas oil and gas industry, this chapter discusses oil and gas industry development in the United States. First, the importance of this industry as part of national GDP is presented and national energy expenditures and investment are discussed.
After that, data on oil and gas proved reserves and production as well as natural gas consumption are offered.
3.1 OIL AND GAS EXPENDITURES AND INVESTMENT
The percentage of national GDP comprised of gasoline and other energy goods has generally followed trends in energy prices (see Figure 32). Energy goods accounted for 2.0 percent of GDP in 2004. This share increased steadily, reaching 3.2 percent in the third quarter of 2008, before declining to 2.0 percent in the second quarter of 2009.
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Figure 32: Gasoline and Other Energy Goods as Part of GDP, 2004 - 2009
$200
$250
$300
$350
$400
$450
$500
Q1 2004 Q2 2004 Q3 2004 Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009
Billions of Dollars
Gasoline and Other Energy Goods as Part of GDP
Source: Bureau of Economic Analysis
The BEA started to report more detailed GDP data in the fourth quarter of 2008. Table 8 shows detailed personal consumption expenditures and nonresidential fixed investments for the last three quarters. Due to the lack of extensive time series data, seasonality may account for the declines in both sectors during this time period. Decreasing energy prices are also causing the declines. Overall, $277.6 billion were spent by United States households on energy goods during the second quarter of 2009, with $51.3 billion on natural gas. Almost $14.7 billion came from natural gas sales to the ultimate residential customers. About $71.5 billion were invested in the national oil and gas well drilling and exploration industry in the second quarter of 2009, which accounted for 48.1 million feet of drilling footage. The cost of nonresidential fixed investment per foot of drilling was $369.2 during the second quarter of 2009, a decline of 12.4 percent from the fourth quarter of 2008.
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Table 8: U.S. Real GDP, Expanded Detail, Q4 2008 - Q2 2009
Category Q4 2008 Q1 2009 Q2 2009
Total GDP (Billions) $14,347.3 $14,178.0 $14,149.8
Personal Consumption Expenditures
Gasoline and Other Energy Goods
(Billions) $321.2 $271.0 $277.6
Natural Gas (Billions) $64.0 $57.9 $51.3
Sales of Natural Gas to Ultimate
Residential Customers (Millions) $18,170.7 $15,963.9 $14,653.0
Nonresidential Fixed Investment
Oil and Gas Well Drilling and Exploration
(Billions) $173.3 $104.9 $71.5
Drilling Footage (Millions of Feet) 108.2 64.6 48.1
Cost Per Foot (Dollars) $421.5 $401.1 $369.2
Using energy prices and adjusted energy consumption estimates, the EIA calculates expenditures on energy. Table 9 presents United States petroleum and gas expenditures data from 2003 to 2006, and represents the latest available data. Expenses on petroleum include spending on distillate fuel oil, jet fuel, liquefied petroleum gases, motor gasoline, residual fuel oil and other petroleum products. Overall, national spending increased during this time period, with larger increases seen in petroleum expenditures than in natural gas expenditures.
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Table 9: Petroleum and Natural Gas Expenditures in U.S., 2003 - 2006
Year Petroleum Expenditures (Million Current Dollars)
Annual Change
Gas Expenditures (Million Current Dollars)
Annual Change
2003 $378,967 18.5% $143,952 29.7%
2004 $468,351 23.6% $162,166 12.7%
2005 $595,862 27.2% $199,605 23.1%
2006 $681,443 14.4% $189,640 -5.0%
3.2 CRUDE OIL PROVED RESERVES, PRODUCTION, AND CONSUMPTION IN THE UNITED STATES
According to the “Annual Energy Outlook 2009 with Projections to 2030” by the EIA, no growth in oil consumption in the United States is expected between 2007 and 2030. Oil use is curbed in the projection by the combined effects of rebounding oil prices, more stringent corporate average fuel economy standards, and requirements for the increased use of renewable fuels.
Table 10 presents proved reserves and production development of crude oil from 2004 to 2009.
There were 21,317 million barrels of crude oil proven to be in United States reserves in 2007, a slightly lower amount than proved reserves in 2004. While proved reserves experienced both annual declines and increases during the period, domestic production of oil has been consistently declining. There were 1,811,817 thousand barrels of oil produced in 2008, which was 8.6 percent lower than the amount of crude oil produced in 2004.
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Table 10: Proved Reserves and Production of Crude Oil in U.S., 2004 - 2008
Year Proved Reserves
(Million Barrels)
Annual Change in Reserves
Oil Production (Thousand
Barrels)
Annual Change in Production
2004 21,371 -2.4% 1,983,302 -4.3%
2005 21,757 1.8% 1,890,106 -4.7%
2006 20,972 -3.6% 1,862,259 -1.5%
2007 21,317 1.6% 1,848,450 -0.7%
2008 N/A N/A 1,811,817 -2.0%
3.3 NATURAL GAS PROVED RESERVES, PRODUCTION, AND CONSUMPTION IN THE UNITED STATES
Unlike proved reserves of crude oil, proved reserves of natural gas increased consistently from 2004 to 2009 (see Table 11). Natural gas is commonly discussed as either wet or dry gas. Wet gas contains some of the heavier fluid hydrocarbons as vapor, is commonly associated with petroleum, and is valuable because of the extractable hydrocarbon liquids it contains. Dry gas differs from wet gas in that it does not carry appreciable amounts of the heavier hydrocarbons as vapor. According to the EIA, dry natural gas reserves increased to 237,726 billion cubic feet or by 23.5 percent from 2004 to 2007. Similarly, wet natural gas (after lease separation) reserves increased to 247,789 billion cubic feet or by 23.2 percent during the same period.
Proved reserves of natural gas liquids increased by 15.3 percent, reaching 9,143 million barrels in 2007.
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Table 11: Proved Reserves of Natural Gas in U.S., 2004 - 2007
Year Dry Natural Gas
(Billion Cubic Feet)
Natural Gas, Wet After Lease Separation (Billion Cubic Feet)
Natural Gas Liquids (Million Barrels)
2004 192,513 201,200 7,928
2005 204,385 213,308 8,165
2006 211,085 220,416 8,472
2007 237,726 247,789 9,143
The EIA recently raised its projection for United States production and consumption of natural gas, reflecting a larger resource base and higher demand for natural gas for electricity generation. Among the various sources of natural gas, the most rapid growth is expected in domestic production from unconventional resources, while the role played by pipeline imports and imports of liquefied natural gas declines over the long term. From 2007 to 2030, domestic production of natural gas is projected to increase by 4.3 trillion cubic feet (or 22 percent), while net imports fall by 3.1 trillion cubic feet (or 83 percent).
Table 12 presents United States natural gas production data from 2004 to 2008. During the period, the marketed production of gas increased by 9.9 percent, reaching 21,442.2 billion cubic feet in 2008. The number of wells producing gas increased by 11.5 percent from 2004 to 2007 and was 452,768 during the latter year. Meanwhile, average gas production per well declined by 8.0 percent from 48.1 to 44.2 million cubic feet during the same period.