A bill that would set the gross production tax rate on oil and natural gas wells at 2 percent for the first 36 months of production is expected to reach the state House of Representatives late Wednesday or early Thursday.
House Bill 2562 would affect the early production of vertical and horizontal wells throughout the state. After three years, the wells’ remaining production would be taxed at 7 percent.
The bill on Tuesday was approved by conference committees in both chambers. The Senate committee approved the bill after 7 p.m. Tuesday.
The full House must wait 24 hours before taking up the measure.
The bill would eliminate drilling tax credits, including those for the state’s deepest wells and for three-dimensional seismic activity.
“It’s a good compromise between where we were and where the Legislature felt like they needed to be,” said Chad Warmington, president of the Oklahoma Oil and Gas Association. “We’ve given in on the rate and duration, but we get out of it a tax code that is much more simple and much more permanent. We’ve eliminated a lot of pages of outdated incentives. Now we have a tax code that is very simple to understand.”
Opponents, however, said the tax rate still is too low for too long.
“We think the current plan is still a bad deal for the state,” said David Blatt, director of the Oklahoma Policy Institute.
“We need to strike a balance between what is a reasonable tax rate and what is able to generate critical revenue to fund essential state services. There hasn’t been a compelling argument made for why this tax break should be extended at the 2 percent rate for a full three years. That’s still far more generous than other states offer. We believe that Oklahoma can tax production at its tradition 7 percent rate and still be a very attractive place to invest and still provide for schools and public services.”
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