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Fallin signs bill to adjust Okla. production tax

Published on NewsOK Modified: May 28, 2014 at 6:10 pm •  Published: May 28, 2014

OKLAHOMA CITY (AP) — All of Oklahoma's oil wells would be taxed at a standard 2 percent rate for the first three years of production under a measure Gov. Mary Fallin signed Wednesday that had been sought by the oil and gas industry.

The bill would apply the new rate to all wells drilled after July 1, 2015. After three years at the incentivized rate of 2 percent, the tax would return to the standard tax rate of 7 percent. The length of the reduced rate is significant because wells produce considerably more oil and gas in the first few years of production.

Currently, horizontally drilled oil and gas wells, which now account for about 70 percent of all wells in Oklahoma, are taxed at 1 percent for the first four years of production, but that incentive is set to expire next year. If lawmakers took no action, the rate would return to 7 percent, which is the current rate for traditional vertical wells.

Industry officials argued that without the incentive, drilling companies could decide to leave Oklahoma and search for oil and gas in other states.

Fallin said oil and natural gas production is a critical economic engine in Oklahoma that is driving job growth and that extending the incentive sends a message to the industry worldwide that they are welcome in Oklahoma.

"We want to be a leader in this field not just today but for decades to come," Fallin said in a statement. "The new policy will also secure state revenue for priorities like education, while continuing to encourage drilling, investment and job creation in Oklahoma."

But opponents of the bill maintain the incentive, which was put in place when horizontal drilling was costly and experimental, is costing the state hundreds of millions of dollars of potential revenue that could be used to better fund public schools, build roads and bridges, or improve the state's health care system.

"It's become corporate welfare," said Rep. Mike Brown, D-Tahlequah. "Sure, they provide nice, high paying jobs, but there are other businesses in Oklahoma that provide nice jobs, and they're not up here asking for a handout.

"Just because they wear $500 suits doesn't make it right."



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