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Calley signs legislation encouraging further recovery of oil from existing wells

Tuesday, April 1, 2014

KALAMAZOO, Mich. - Lt. Gov. Brian Calley today signed legislation that encourages the recovery of oil that is difficult to extract from existing wells across the state, making full use of these producing sites in an environmentally sound manner. 

House Bill 4885, sponsored by state Rep. Aric Nesbitt, reduces taxes paid by companies that use an enhanced method of extracting the oil. The method uses carbon dioxide gas, which is injected into depleted oil and natural gas wells to push the once-unattainable oil toward other wells where it is captured and pumped to the surface. It has the added environmental benefit of permanently trapping the carbon dioxide in the underground wells rather than releasing it into the atmosphere.

The legislation does not include the process of hydraulic fracturing, commonly known as fracking.

“Michigan is committed to the wise use of its natural resources,” Calley said. “Providing incentives to fully develop old, traditional oil fields benefits consumers and our economy. Protecting our environment while fueling our economy is a win for everyone.”

Oil and gas production is taxed under Michigan’s Severance Tax Act, which imposes a tax on the gross cash market value of the products produced in lieu of all other state and local taxes, except personal property tax. The tax rates are 6.6 percent for oil and 5 percent for natural gas, though the rate is reduced to 4 percent on wells that produce less than 10 barrels per day or 20 to 35 barrels a day, an incentive to produce oil that otherwise would not be recovered. HB 4885 sets a flat 4 percent severance tax rate for companies using the enhanced oil recovery method.

 “We have a great opportunity to become more competitive with other states by using this innovative method of enhanced recovery to help encourage the development of more Michigan and American energy,” Nesbitt said. “The bills signed into law today will allow our state to take its place at the forefront of these advancing fields of energy production.”

The process is more expensive than traditional methods, but is considered to be more environmentally friendly because of the use of carbon dioxide. Currently there are eight such projects under way, which have combined to produce about 1.5 million barrels of oil since the first project began in 1997. An additional 200 million to 350 million barrels of oil could potentially be recovered through this process, which is 30 to 50 times Michigan’s current annual production. 

The projects can only be undertaken with specific approval of the state Department of Environmental Quality. 

Calley signed the bill at Western Michigan University’s Michigan Geological Repository for Research and Education. MGRRE is a primary source for geological research in the state and was instrumental in the development of the carbon dioxide gas-based enhanced oil recovery technology. MGREE also shares physical facilities with the Michigan Geological Survey, which was transferred to WMU through 2011 legislative action.

HB 4885 now is Public Act 82 of 2014. 

Calley also signed three additional bills that promote the use of enhanced oil recovery. HB 5254, sponsored by state Rep. Rick Outman; HB 5255, sponsored by state Rep. Thomas Stallworth III; and HB 5274, sponsored by state Rep. Peter Pettalia, provide for the exercise of eminent domain when laying pipelines to transport carbon dioxide. The bills now are Pas 83, 84 and 85, respectively. 

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Article V Section 26 of the Michigan Constitution gives authority to the lieutenant governor to sign legislation when the governor is out of state.