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Industry incentives draw attention

March 29, 2011
The Oklahoma Policy Institute is focusing new attention on tax provisions for the oil and natural gas industry, specifically focusing on tax incentives for horizontal and deep drilling.

From the Tulsa World:

Fiscal year 2010 showed the highest level of gross production tax exemptions in state history - $112.7 million, the report shows. Some $83.3 million of that was for horizontally drilled wells and $25.3 million was for deep wells, those below 15,000 feet.

Oklahoma is among the nation's largest producers of oil and natural gas, and the oil field tax is a major source of state tax revenue.

Total revenues for the tax reached a high of $1.168 billion in fiscal year 2008 but fell to $732 million in fiscal year 2010 when natural gas prices were low. Even at that level, gross production taxes represented 10.6 percent of state tax revenue.

State law grants exemptions for seven types of oil and natural gas production, but most of those exemptions are more severely limited than the exemptions for production from deep and horizontally drilled wells.

From fiscal year 2004 to fiscal year 2010, the exemption total for horizontal wells was nearly $169.4 million. For deep wells, the total was more than $188 million.

Who gets the benefit of the tax breaks is not public record.

The state's website - tulsaworld.com/taxbreak - offers details of who is getting dozens of much smaller state tax incentives and how much they were worth, but Oklahoma Tax Commission spokeswoman Paula Ross said the gross production tax law does not provide for those records to be made public.

Opinion is divided over the economic impact of oil field tax exemptions.

Tulsa oilman George Kaiser testified to the state legislative committee in 2009 that the tax incentives haven't affected his decisions about when and where to drill.

Steven C. Agee of the Economic Research & Policy Institute at Oklahoma City University conducted an informal survey of 25 independent Oklahoma producers in 2008 and found state tax incentives were one of the least important factors used in determining when to drill.

But Mike Terry, president of the Oklahoma Independent Petroleum Association, said tax incentives do make a difference in decisions about where and when to drill wells.

"Other states also have incentives," Terry said. Petroleum companies can take their rigs to other states that are willing to offer better deals, he said.

The spokesman for one large Oklahoma exploration and production company agreed that the tax incentives are key to ensuring future drilling activity in the state.

"The incentive program is a good investment that is creating jobs and wealth and economic growth in Oklahoma," said Chip Minty, spokesman for Oklahoma City-based Devon Energy Corp.

Terry said petroleum industry taxes - everything from gross production taxes to the income taxes of oil company employees - account for 22 percent of the state's tax revenue. Keeping the industry vital is key to the state's economic future, he said.
 
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