The Oklahoma Legislature on Thursday approved a bill that would set the state’s gross production tax rate for oil and natural gas wells at 2 percent for the first 36 months of production.
Representatives approved the bill 61-34, and Senators passed the measure 30-14. The bill now heads to Gov. Mary Fallin.
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.
“It is important we get this policy right,” said Rep. Jeff Hickman, R-Fairview, who authored the bill in the House. “It’s important that wells are drilled in Oklahoma, and it’s important that these jobs are created in Oklahoma.”
Proponents have said the low effective rate is needed to help Oklahoma compete with other states that have better oil and natural gas resources. Opponents, however, said the tax rate still is too low for too long.
Rep. Mark McCullough, R-Sapulpa, said there should be a balance between supporting the industry and supporting state services.
“If we do it right, we can create vital services and still have a strong tax position for the industry,” he said. “But we don’t want to give away the farm.”
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, which would return the tax rate to 7 percent.