Gov. Mary Fallin on Wednesday signed legislation that will set the state’s oil and natural gas gross production tax at 2 percent for the first 36 months of production.
The new tax rate will become effective July 1, 2015, when the existing tax program is set to expire.
“The energy industry is the leading driver of economic growth and job creation in Oklahoma,” Fallin said. “Approximately one in four Oklahomans have a job and a salary because of our energy producers. They are part of the fabric of this state, and we rely on them, not just for continued growth and prosperity, but to support everything from our charity organizations to our sports teams.”
Oklahoma Secretary of Finance, Administration and Information Technology Preston L. Doerflinger said HB 2562 was the result of successful talks between the oil and gas industry, legislative leaders and the governor.
“The compromise we reached adequately addresses the revenue issues caused by the previous policy while still supporting oil and gas producers,” Doerflinger said. “It’s a win-win result for energy producers and the state, and I’m proud that industry and government were able to collaborate and agree on a deal that serves everyone well.”
The state historically has assessed a 7 percent tax. 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 have returned the tax rate to 7 percent.
House Bill 2562 will set the tax rate the same for both horizontal and vertical wells.
“Oklahoma’s energy industry is grateful for the leadership of Oklahoma’s Senate and House members, as well as the governor, in developing principled legislation that preserves the economic well-being of the industry that built this state,” Oklahoma Oil and Gas Association President Chad Warmington said.