From 2008 to 2010, the United States was in a recession, the effects of which are still being felt. While Oklahoma's state budget was squeezed, we weren't forced into the drastic measures of some states — raising taxes, laying off workers and being forced to borrow money from the federal government. Oklahoma took a hit, but it could have been much worse without a strong oil and gas industry.
Oklahoma is still an oil and gas state. The numbers speak for themselves: In 2011 (the most recent numbers available), the energy industry contributed:
$52 billion in gross state product, or one out of every $3 in GSP.
$28 billion in state personal income, or one out of every $5.
344,503 jobs, representing one out of every six jobs in the state.
The importance of the industry to the state economy is unquestioned. This is why I was puzzled by a recent press release from state Finance Secretary Preston Doerflinger that showed gross production tax collections are down, but didn't provide any of the context about the actual reasons why those numbers have been reduced. By doing so, he implies that the energy industry isn't treating the state in a “fair and equitable” manner.
I disagree. The oil and gas industry contributed more than $2.7 billion in taxes to local and state governments in 2011. And in 2010 when the state was facing a recession, state leaders approached the energy industry to ask if we were willing to defer payments we were owed. We agreed, which netted the state more than $290 million extra when it needed it the most. Claiming the energy industry isn't paying its fair share now is a slap in the face.
As part of that agreement, the state must follow through on its promise that came with the deferment. Payments are now being made for those two years, which is a factor in making the gross production tax numbers artificially low. An overreaction to what should have been an anticipated drop in revenue will inevitably cost the state jobs and future investment.
House Speaker T.W. Shannon rightly notes that “capital won't flow to a hostile environment.” The same can be said of drilling rigs. I'm sure that Doerflinger, like the rest of the nation, has observed increased oil and gas activity in states such as Pennsylvania and Ohio, not to mention our neighbors in Texas. Policymakers must not needlessly push the oil and gas industry to look elsewhere to expend capital and create jobs.
Tax policy matters; it incentivizes companies to perform the economic activity that you desire. Devon Energy alone has a 2013 capital expenditure budget for drilling in Oklahoma of more than $1 billion. It's in the process of consolidating its operations from Houston to Oklahoma City. The significance of this can't be understated.
Oklahoma's tax policy is doing exactly what we want it to do.
Warmington is president of Mid-Continent Oil & Gas Association of Oklahoma.