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Horizontal drilling tax fight awaits Oklahoma Legislature

The debate over whether to extend or change Oklahoma's horizontal drilling tax credit is likely to be one of the biggest oil-and-gas-related issues for the Legislature in the upcoming session.
by Adam Wilmoth Modified: January 3, 2014 at 4:00 pm •  Published: January 2, 2014

With about $171 million less for the Legislature to spend this year than last, an already heated debate over oil and natural gas drilling incentives is expected to soon become much more intense.

At issue is the gross production tax energy companies pay on oil and natural gas produced in Oklahoma through horizontal drilling.

“We're having good discussions with the industry about collaborating on a new structure that retains Oklahoma's status as a national leader in energy policy and production,” Finance Secretary Preston L. Doerflinger said in a statement Thursday. “There is a legislative presence also at the table acknowledging the need for consideration of a better solution long term. Oklahoma has a great energy industry with a lot of bright minds who we're collaborating with on something that can work for everyone in the long term.”

Doerflinger sparked controversy throughout the state oil patch this summer when he suggested legislators consider changing a tax break for horizontal drilling.

The state historically has assessed a 7 percent tax on most production. But in 2010, the Legislature created a temporary incentive designed to stimulate horizontal drilling by cutting the tax to 1 percent for the first 48 months of production from horizontal wells.

Out of 172 rigs drilling for oil and natural gas in Oklahoma, 155 were involved in horizontal drilling, according to the most recent numbers from Baker Hughes.

Industry leaders have said the tax credit should be extended because it has been successful.

House Speaker T.W. Shannon echoed that sentiment last month at the Oklahoma Oil and Gas Association annual meeting.

“It is my opinion that most of the solutions I've heard are solutions in search of a problem. I see a program doing exactly what it was supposed to do. We wanted to incentivize drilling,” he said. “Now is the time to put the pedal to the metal.”

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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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