Executives from Oklahoma City’s three largest oil and natural gas companies told The Oklahoman this week that they would be forced to move rigs out of the state if the tax rate were increased.
Fellow oilman George Kaiser, however, said tax rates are a small factor in deciding where to drill and are unlikely to lead investment away from Oklahoma.
The ongoing shale oil and natural gas drilling boom has led to increased drilling throughout the state and region.
Oklahoma’s rig count has soared to 195 as of Friday, up more than 180 percent from a recent low of 69 in September 2009. The state is now No. 2 in the country in rig count, slightly ahead of North Dakota at 176 and well behind Texas at 891, according to Baker Hughes.
Each rig supports up to 100 employees, including contractors. Most of those workers are used in the completion processes, including hydraulic fracturing, or fracking.
“The good thing is we’re seeing a takeoff in production. What we’ve had has been an effective tool,” said Harold Hamm, CEO at Continental Resources Inc. “If something doesn’t happen, the state’s going to have a great benefit from what’s happening out there — if we don’t kill the golden goose.”
Higher gross production taxes, he said, could cook the gander.
Steady taxes are especially important because the resource in Oklahoma is not as good as that in Texas and North Dakota, said Doug Lawler, CEO at Chesapeake Energy Corp.
“If we want to help the state continue to improve the way the state has the past several years as a result of revenue that comes from oil and gas, if you want to continue to improve in education and health care and roads, make the state a preferential place to invest,” he said. “The rock is not equal. Don’t turn us away.”
Kaiser-Francis Oil Co. executives, however said the tax rate is a small factor in determining the return from a well.
“If the margin is so thin for the tax rate to make a difference, you’re simply not going to drill that well anyway,” said Don P. Millican, Kaiser-Francis’ chief financial officer. “There’s no doubt the lower tax rate helps the oil and gas industry, but if it’s going to be an effective incentive, it has to be enough to change behavior.”
Nichols, Hamm and Lawler said their three companies combined plan to spend $3.5 billion to $4 billion in the state next year. If the tax increased to 7 percent, they said, that investment could be cut in half.
The companies are required to drill the wells that promise the best return to their shareholders, Nichols said.
“It’s a legal requirement enforced by shareholders,” Nichols said.
Oklahoma’s rig count has soared to 195 as of Friday, up more than 180 percent from a low of 69 in September 2009. The state is now No. 2 in the country in rig count, slightly ahead of North Dakota at 176 and well behind Texas at 891, according to Baker Hughes.