Arkansas severance tax revenue on trend to fall below fiscal 2024

Arkansas’ severance tax revenue will need a major boost in the final two months of fiscal year 2025 if it is to rebound above the $16.41 million in fiscal year 2024, which was the third lowest since 2009.

The natural gas severance tax revenue in the first 10 months (July 2024-April 2025) of fiscal 2025 totals $13.966 million, below the $15.686 million in the same period of the 2024 fiscal year. The 2025 fiscal year revenue trend also is well off the recent peak of $76.905 million in fiscal year 2023.

Fiscal 2023 was part of a two-year trend in which revenues recovered from a decline that began in fiscal year 2016 when revenue was $31.858 million, well below the 2015 record of $78.634 million. Revenues reached a recent low of $14.067 million 2020.

Following are the past 10 years of Arkansas natural gas severance tax revenue.
2024: $16.41 million
2023: $76.905 million
2022: $60.915 million
2021: $18.978 million
2020: $14.067 million
2019: $38.347 million
2018: $36.579 million
2017: $38.152 million
2016: $31.858 million
2015: $78.634 million

PRICE POINTS
Partially driving lower natural gas production in Arkansas, especially in the state’s Fayetteville Shale Play, is the relatively low market price of the commodity. The Henry Hub natural gas spot price continues to hover just above $4 per MMBtu – million British thermal units. The recent prices are, however, above 2024 levels. Following are monthly Henry Hub prices in 2025, compared with the same month in 2024, according to the U.S. Energy Information Administration.

Henry Hub natural gas spot price, per MMBtu
January 2025: $4.13
January 2024: $3.18

February 2025: $4.19
February 2024: $1.72

March 2025: $4.19
March 2024: $1.49

April 2025: $3.40
April 2024: $1.60

The spot market price is below what industry leaders say is needed for increased production and drilling activity.

According to a recent survey of natural gas industry executives conducted by the Federal Reserve Bank of Kansas City, the price needed to be above $5.10 per MMBtu to “substantially” increase production. They said $3.80 was needed to “ensure drilling remained profitable,” according to an April 15 report from Natural Gas Intelligence.

Speaking with Argus Media, Aethon Energy President Gordon Huddleston said in January that prices need to be above $5 per MMBtu for producers in the Haynesville shale in east Texas and northern Louisiana to add “significant” new output. Aethon is the largest privately held U.S. gas producer, according to Argus.

SEVERANCE TAX DISTRIBUTION
According to the Arkansas Department of Finance and Administration, the first $675,000 in severance tax revenue per fiscal year is deposited in Arkansas’ general revenue fund. After that, 95% is deposited as special revenues and distributed according to the Arkansas Highway Revenue Distribution Law, which is 70% to the state highway department, 15% to all cities, and 15% to all counties.

The other 5% of collections are deposited in the “Road and Bridge Repair, Maintenance and Grants Fund,” which is used exclusively for grants to counties for damages resulting from trucks and other heavy machinery used to extract natural gas. Such grants are distributed to those counties pro rata based on each county’s active unconventional natural gas wells.