Are Oklahoma Gross Production Taxes Misplaced?

If an analysis of Oklahoma’s horizontal well production is accurate, then maybe state lawmakers should realize their tax rates on oil and gas wells are focused the opposite of when they should be. If you’re an oil and gas developer, you’ll want taxes to remain as they are.

The analysis by Oklahoma Watch found that Oklahoma’s lowest tax rate on oil and gas wells occurs at a time when the well is likely to have its highest production. And that’s in the first two to three years of production. The increased tax tax doesn’t happen until the production-life of a typical well is usually half-over.

The analysis studied more than 3,000 horizontal wells in Oklahoma, those that started production between 2014 and 2017. It was the gross production tax rate that was the focus of some heated debate in the legislature in the session that concluded in May.

The findings of Oklahoma Watch showed a horizontal well typically produced 37 percent of its estimated lifetime oil production and 25 percent of its natural gas production after only one year of sales. By two years, the well was at 53 percent of its crude oil production and 39 percent gas. And by the third year, the state tax increases but by then, 62 percent of the well’s oil production had already occurred.


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