State Treasurer Ken Miller devotes most of his April Oklahoma Economic Report on the gross production tax and the impact of the rates as well as the energy downturn.
“In the past five years, the effective tax rate on Oklahoma crude oil and natural gas gross production has been cut in half,” started Miller.
His report comes at a time when there’s a dispute between operators of the older vertical wells and those developing the horizontal wells. The vertical well operators contend all wells should be taxed at the 7% rate they’re paying and it’s unfair for the horizontal well operators to pay only 2% for the first three years.
Miller states the key driver of the falling gross production effective tax rate has been “the normalization of horizontal wells.” In the early 90s when a one percent horizontal rate was offered as an incentive to encourage what was considered an experimental method, few such wells were drilled. But in recent years, more than 90 percent of the wells drilled in Oklahoma are horizontal wells.
Miller says that means the impact of the one percent incentive rate will decline during the next three years and be gone in 2020, four years after implementation of the 2% rate.
