Environment, Education, Energy: Policy to People

Oklahoma House Speaker Wants to Make Horizontal Drilling Tax Break Permanent

A rig hand on a Triad Energy horizontal drilling operation near Alva, Okla. Company CEO Mike McDonald says he likely wouldn't have drilled the well with out a tax break Oklahoma's House Speaker has proposed making permanent.

Joe Wertz / StateImpact Oklahoma

A rig hand on a Triad Energy horizontal drilling operation near Alva, Okla. Company CEO Mike McDonald says he likely wouldn't have drilled the well with out a tax break Oklahoma's House Speaker has proposed making permanent.

Oklahoma House Speaker T.W. Shannon will author legislation to make permanent an oil and gas industry tax break for horizontal drilling.

The incentive lowers gross production taxes from 7 percent to 1 percent for the first 48 months of production, and was installed in the ’90s to encourage the then-experimental type of drilling. Now days, most oil and gas wells in Oklahoma are horizontally drilled, and critics say the incentives are unnecessary.

But Shannon and oil and gas operators — like Triad Energy’s Mike McDonald, who StateImpact interviewed about the incentives in August 2013 — say lower taxes have encouraged drilling and helped create jobs.

“…we should make this rate permanent and send the message that Oklahoma is a place that welcomes the oil and gas industry, along with the jobs and economic development they bring to our great state,” Shannon said in a statement about the legislation he plans to introduce in the 2014 legislative session that begins in February.

Allowing the gross production tax rate on horizontal drilling to return to 7 percent, would have a “severe impact” on Oklahoma’s economy and job market, Shannon said in his statement.

Republican Secretary of Finance and Revenue Preston Doerflinger created a small fuss in July 2013 when he asked lawmakers to re-examine oil industry tax breaks, which he said totaled $321 million in fiscal year 2013.

“Any fiscally responsible policymaker needs to seriously consider at what level government should incentivize something that is now standard practice,” Doerflinger wrote. “It’s not responsible for government to give money away as an incentive if no incentive is needed.”

One complicating factor: Right now, the state is currently paying double. The Tulsa World‘s Randy Krehbiel explains:

During the depths of the recession, producers agreed to forgo collecting rebates from the program. That helped Oklahoma in the short run, but now the state is paying for current production as well as the credits earned during the moratorium.

The left-leaning Oklahoma Policy Institute has been a vocal opponent of the horizontal drilling tax break. In August, the institute’s David Blatt told StateImpact: “A tax subsidy that might have been tenable when it was costing the state $20 million a year becomes a lot less tenable when it it’s costing the state $150 million a year.”

Blatt echoed those sentiments to the World:

David Blatt of the Oklahoma Policy Institute, a consistent critic of the program, said it will cost the state $252 million this year without having much effect on exploration or production.

“Companies drill where the gas is,” Blatt said. “These wells would be highly profitable even without the exemption.”

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  • Okie

    That’s fine, but it won’t work everywhere. Nothing will prevent a future “Tribal” GPT increase in the future that will destroy any tax incentive made at the State level.

    For instance: Currently, in Oklahoma, wells producing on Comanche Tribal land pay a 7% GrossProduction Tax to the State AND another 7% to the Comanche Tribe.

    The Comanche Tribal GPT was a “surprise” that began only about a decade ago and nothing will prevent them from raising theirs to 13%

    • http://stateimpact.npr.org/oklahoma Joe Wertz

      Where is this happening, Okie?

      • Okie

        Comanche tribal land. We have a stripper well lease in Comanche county. We pay 15% in Gross Production Taxes. 7% to the State and 8% to the Comanche Tribe.

        Basically, we were produce oil from a spot that happens to be in two different sovereign states at the same time. LOL.

        • gopherok

          Okie, I remember it well, extortion that would make the mafia blush. Did you get the letter? Retroactive 2 years, if you don’t pay up 21% compounded daily, no pay loose your lease, Oh Yeah if you are a Comanche you are exempt. God bless America.

          • Okie

            Yep. That’s it!

            Kinda makes a fella lose a little of the respect and sympathy that he had for the noble Lords of the Plains. :)

  • Stephen Willis

    Mr. Shannon is severely misguided. Even George Kaiser has come out against continuing oil production tax credits which simply are not needed.

    Governor Fallin and the state legislature need to renew tax credit incentives for new wind energy and solar development, and stop serving their Oil and Gas industry campaign donors. http://stateimpact.npr.org/oklahoma/2013/07/17/head-of-foundation-built-by-oil-riches-says-state-doesnt-need-drilling-incentives/

  • Dot

    If they want the oil, they should pay the tax.

  • Richard Travis

    there is an awful lot of minerals being mined and drilled out from under Oklahoma with little compensation to Oklahomans…the state is cutting budgets left and right, a great deal of it hurting people most at risk while the people who benefit the most, won’t pay a penny more in taxes than they can get away with. Some of you gripe about paying taxes to the tribes….if your people had been moved to a place hundreds of miles from your ancestral lands and told you must accept this place as home…and now your griping because your paying a tax on the oil you are getting? Wow….I am a white man and I get it now pale face!

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