Energy giants float production tax proposal for Oklahoma

Oklahoma’s largest energy companies have proposed a 2 percent tax on the production of horizontal wells. The current 1 percent tax expires next year. Their proposal also would include reducing the tax on vertical wells to 2 percent from 7 percent.
by Adam Wilmoth Modified: May 5, 2014 at 10:00 am •  Published: May 4, 2014

Executives from three of Oklahoma’s largest oil and natural gas companies have proposed a new plan for the state’s tax on oil and natural gas production.

The proposal is the latest offering in the ongoing struggle at the Capitol to address the current tax plan, which is set to expire next year.

The newest proposal would change the gross production tax rate to 2 percent for both horizontal and vertical wells for the first four years of production. The rate would then rise to 7 percent. The proposal has earned the backing of Larry Nichols, executive chairman at Devon Energy Corp.; Harold Hamm, CEO of Continental Resources Inc.; and Chesapeake Energy Corp. CEO Doug Lawler.

“We’ve come up with a proposal that makes the tax simpler, makes it permanent, treats everyone in the industry the same way so it’s totally fair for everyone in the industry,” Nichols said. “It has a modest tax increase to it and continues the economic activity, which benefits everybody.”

The plan has drawn swift criticism from others in the state, including fellow oilman George Kaiser, who said he is concerned the state regularly is among the lowest in the country in teacher pay and health care.

“I have lived here for more than two-thirds of the life of the state. I see what’s happening to the state,” said Kaiser, owner of Tulsa-based Kaiser-Francis Oil Co. “Something has to give. I’m prepared to pay my fair share to the state of Oklahoma.”

Kaiser said he would like to see oil and gas companies — including his — pay 7 percent in gross production taxes

Gov. Mary Fallin’s office indicated a willingness to discuss the 2 percent proposal.

“The governor is inclined to support the concept and thanks the industry and Legislature for collaborating in the review process we recommended last summer,” Secretary of Finance Preston L. Doerflinger said.

The issue

The state historically has assessed a 7 percent tax on most oil and natural gas production. In 1994, the Legislature created an incentive for horizontal drilling. The incentive initially lowered the tax rate to 1 percent for the first two years or until costs were recovered. In 2002, the incentive was extended to up to four years.

The incentive program is set to expire next year in a move that would return the tax rate to 7 percent. Industry leaders have said the tax credit should be extended because it has been successful in boosting drilling throughout the state, and that higher taxes would leave less money available for drilling.

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by Adam Wilmoth
Energy Editor
Adam Wilmoth returned to The Oklahoman as energy editor in 2012 after working for four years in public relations. He previously spent seven years as a business reporter at The Oklahoman, including five years covering the state's energy sector....
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