American Oil and Gas Reporter - November 2024 - 74

IssuesUpdate: Arkansas Independent Producers & Royalty Owners
AIPRO Continues To Strive
On Industry's Behalf
By Del Torkelson
LITTLE ROCK, AR.-From one perspective,
the complaints seemingly make
sense, Rodney Baker acknowledges. Why
have Arkansas counties with significant
natural gas production taken in less severance
tax revenue than they did only a couple
years ago? It seems like a logical question,
he says, until one looks at the facts.
" The question has been raised by the
Association of Arkansas Counties as to
why county governments' collection of
severance taxes was lower last year than
in 2022, when natural gas prices were
higher, " relates Baker, executive director
of the Arkansas Independent Producers
& Royalty Owners Association. " When
Russia first attacked Ukraine, natural
gas went from about $2 to $9 an Mcf,
then back to $2. It is simple math, a
function of lower prices and declining
production, but some counties are missing
that windfall. That feeling has led to
suggestions by the AAC that legislation
may be needed. We have helped calm
the issue, but it may show up again in
our legislative session. "
Which is precisely why AIPRO exists.
When policymakers or the public do not
understand a matter pertaining to oil and
gas, the association is ready to step up,
correct misunderstandings and hopefully
head off bad policy proposals, Baker assures.
" Whereas individual companies
are competitors and may have interests
that place them on opposite sides of
certain matters, we tend to earn our keep
by addressing issues that affect the entire
industry, such as taxes, royalty structures
and other things dealing with the law
and regulation, " he says.
The association also demonstrated
value for members during the 2024 AIPRO
Annual Convention, held Oct. 23-24 at
the Little Rock Mariott. " We try to address
a wide variety of topics of interest to as
many members as possible, " reports
AIPRO Communications and Administrative
Director Anna Swaim. " Every
year, the programming committee comes
up with a fantastic program, and this
year was no exception. "
74 THE AMERICAN OIL & GAS REPORTER
Looming Legislature
The chatter AIPRO has encountered
about a possible severance tax hike to
help county governments make ends meet
offers a strong example of the synergy
not only between the group's staff and
its members, but also between AIPRO
and its policymaker allies in forums such
as the Arkansas General Assembly.
" We listen when our members tell us
about what they pick up on, " Baker relates.
" We also have relationships with legislators
that understand the industry and let us
know what they hear. Relationships and
word-of-mouth are key ways to pick up
early signals. That is why it is important
to have an association with people on the
ground all the time.
" An association represents people who
cannot be involved in the process constantly, "
he continues. " Often, representing
member interests is defensive, which describes
our current situation more than
anything: Watching to be sure nothing
gets out of hand. "
Baker acknowledges that county governments
hunting for revenue face difficult
situations. " They have to deal with inflation
like everyone else, " he observes.
Unfortunately, he indicates some local
governments also have sought to increase
ad valorem tax collections by turning to
third-party assessors who often inflate values.
" They have tried to increase assessments
by large multiples, " he reports. " A
few court cases filed in response to those
assessments have been decided very much
in the industry's favor. Legislation dealing
with ad valorem taxes could happen. "
Another item on which AIPRO will
have its eye during the 2025 session involves
efforts to revamp how oil and gas royalties
are calculated. According to Baker, some
lawmakers have sought to revise a law in
place since 1985 that sets the first oneeighth
as a blended royalty less expenses.
" Today, there is one operator who receives
the money and disperses it accordingly, "
he describes. " We expect there
will be proposed legislation to pay the
first 1/8 on a gross basis without deducting
expenses, while retaining the blended
payment to mineral owners. This would
complicate royalty calculations even more,
instead of simply repealing the law. "
AIPRO prefers that the longstanding
law remain as is, Baker indicates, noting
that producers' accounting systems are
set up for the existing structure. " It will
cost companies millions to change that if
the law is repealed, " he points out. " However,
it is also our position that if the legislature
decides to change the structure,
it should simply repeal the 1985 law instead
of trying to fit together bits and
pieces to favor one side over the other. "
Other than keeping close tabs on the
situation with royalties and severance
taxes, Baker predicts AIPRO's agenda
for the 2025 legislature will remain flexible
according to how events unfold. " When
the economy feels volatile, it puts us in a
somewhat defensive mode, " he describes.
" We are still considering the possibilities
about whether we should file preemptive
legislation if we hear something, but right
now, we are trying to get a handle on
what may be thrown at us. "
Watching Washington
Many of the public policies being
thrown at Arkansas oil and gas producers
are coming not from Little Rock, but
Washington, Baker observes. " Federal
regulations are a big question mark for
our members, " he comments.
Speaking about a month before Election
Day, Baker said the outlook for the U.S.
Environmental Protection Agency's new
methane regulations for existing wells
weighs heavily on the minds of many
operators, especially those with marginal
South Arkansas oil wells.
" There is a lot of uncertainty about
the EPA regulations, and we could very
well see some of our oil wells down
there go out of business, " he cautions.
" Some of the definitions reclassify wells
as larger if they have more than one piece
of equipment, which a lot of our wells
do. Many of them will be caught in that
situation if it does not change. "
The association is doing its part to
push back, Swaim assures. " AIPRO continues
to be part of national coalitions
working on that issue, " she illustrates.
American Oil and Gas Reporter - November 2024

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