Natural gas development and local government finance Daniel Raimi, Associate in Research, Duke University Energy Initiative April 21, 2015 North Carolina Energy Conference Implications for North Carolina

Shale Public Finance project 2 Funded by: –The Alfred P. Sloan Foundation –The Duke University Energy Initiative Carried out by the Duke University Energy Initiative –Richard Newell, director and principal investigator –Daniel Raimi, key researcher and analyst Daniel Raimi, April NC Energy Conference

Project significance 3 Local public services matter for quality of life, property values, and more Public perception of industry matters for resource development Daniel Raimi, April NC Energy Conference

4 Bakken Marcellus Fayetteville Haynesville Eagle Ford Permian Barnett Green River Map source: HPDI/Drilling Info 2.0. Heat map data represents drilling permits issued in the 90 days leading up to Jan. 14, Data not available for Alaska Our travels to active oil and gas regions Denver- Julesburg Daniel Raimi, April NC Energy Conference San Juan Piceance Los Angeles Kern Co. Miss. Lime Woodford Utica Hugoton North Slope Kenai Peninsula Most permits Some permits Few permits No permits Uintah

Local public revenues and costs associated with oil and gas development 5 Daniel Raimi, April NC Energy Conference Major revenue sourcesMajor costs State severance taxesRoad damage Local property taxes Water/wastewater infrastructure associated with population growth Local sales taxes Leasing revenue from public lands Staff costs: administrative, law enforcement, workforce retention In-kind contributions

6 Bakken Marcellus Fayetteville Haynesville Eagle Ford Permian Barnett Green River Map source: HPDI/Drilling Info 2.0. Heat map data represents drilling permits issued in the 90 days leading up to Jan. 14, Net fiscal impacts for local governments examined Denver- Julesburg Daniel Raimi, April NC Energy Conference San Juan Piceance Los Angeles Kern Co. Miss. Lime Woodford Uniformly net positive Mostly net positive Mix of positive/negative Mostly net negative Utica Hugoton Uintah

Lessons on overall fiscal effects 7 Most local governments have experienced net positive fiscal impacts to date Fiscal effects are not uniform –Some local governments in very rural areas have struggled financially during large boom periods Collaboration with industry can help reduce costs –Especially for road maintenance/repair, as seen in AR, OH, PA and parts of CO State fiscal policies play an important role in providing revenue for local governments with large-scale development Daniel Raimi, April NC Energy Conference

8 Triassic Basins resource potential in context N.C. Triassic Basins Bakken/Three Forks Eagle Ford Marcellus N.C. Triassic Basins Bakken/Three Forks Eagle Ford Marcellus Source: U.S. Geological Survey. Marcellus and Eagle Ford assessments from Bakken/Three Forks assessment from 2013 technically recoverable resources billion cubic feet technically recoverable resources million bbl Natural gas Oil and natural gas liquids

Public finance considerations in the absence of major oil and gas production Daniel Raimi, April NC Energy Conference 9 In communities with little or no drilling, some benefit, while others face challenges State and local governments compete to attract large infrastructure projects Tax policies may provide incentives or exemptions for certain projects or activities, which may create local challenges State-level tax policy needs to take into account local fiscal issues

For more information 10 Daniel Raimi Associate in Research Duke University Energy Initiative energy.duke.edu Find our publications online at: energy.duke.edu/shalepublicfinance Daniel Raimi, April NC Energy Conference