Oil and Gas Industry Feels Breaking of State Promises Just Like Wind Industry

The wrap-up of the 2017 session of the Oklahoma legislature resulted in a bitter response from some oil and gas groups who complained that for the third consecutive year, the oil and gas industry will see tax increases.

“The oil and natural gas industry is the single largest tax contributor to the state budget, and this is the third year in a row the state will further increase its dependency on the industry with additional tax increases,” declared Chad Warmington, head of the Oklahoma Oil and Gas Association.

The oil and gas industry will face another $141 million in new taxes in the coming fiscal year as a result of the legislative-approval of HB 2377 and HB 2429.

Without mentioning Democrats by name, it was clear who Warmington was talking about in a statement released after the end of the session on Friday.

“The greater disappointment in this session is that a small group of legislators blocked a compromise on reasonable funding solutions to help the state address its budget shortfall this year without significantly affecting economic growth and job creation,” said Warmington. “Due to this impasse, the legislature passed a risky solution to address state funding by increasing taxes by roughly 300 percent on thousands of currently producing wells.

He charged the increase will only be a determent in the future for any growing industry and further said it will apply to any industry “who sees that Oklahoma will change the game on its promises once the investment is made.”

Ironically, his charge of the state reneging on promises to oil and gas is what hit the wind industry too. And the removal of wind tax credits came with the support of some of the state’s largest oil and gas development companies.

The tax hikes will occur as a result of HB 2377 which ends all gross production tax rebates. It will create a two-tiered GPT structure of 2 percent for 36 months and 7 percent afterward for the life of the well. It is estimated the change in the tax structuring will result in $46.3 million in state revenue for fiscal year 2018.

Rep. Leslie Osborn of Mustang and Sen. Kim David were authors of the bill.

The other measure, HB 2429, authored again  by Osborn and David changed the tax rate on more than 5,700 producing wells from one percent to 4 percent for the remainder of the 48-month time. It applies to horizontal wells spudded before July 1, 2015 and prior to the current, permanent two-tiered gross production tax structure took effect. It’s believed this tax increase will result in revenue of $95 million for the new fiscal year.

But the Oil and Gas Association pointed out how other tax hikes in the past three years affected the industry. It stated that in 2016,the industry paid an additional $120 million in tax increases when a cap was put on economically at-risk well rebate and limited the amount of production wells would quality for the rebate.

Two years ago, the state increased taxes on horizontal drillers by 100 percent when it created the permanent two-tiered gross production tax rate for all wells of 2 percent for the first 36 months and 7 percent for the remaining life of the well, on average more than 30 years.

Two years ago, the state also eliminated more than half of the gross production  tax rebates, six of the eleven rebates which had existed back to the early 1990s.

Here is what oil and gas industry pays in taxes in Oklahoma: petroleum excise tax, state land office mineral revenue tax, state sales and use tax for industry sales, state sales and use tax for industry purchase, corporate income tax, personal income taxes, energy resources revolving fund tax, marginal  well tax, Gross Production Tax, local property taxes, and local sales and use tax.

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