Oklahoma's finance secretary is calling for changes to how horizontal oil and natural gas wells are taxed, saying a reduction in the gross production tax has led to significant revenue loss for the state.
Finance and Revenue Secretary Preston Doerflinger said Wednesday he is urging oil and gas industry leaders and lawmakers to come together and discuss the issue.
“I think everybody recognizes that something has to give,” he said. “It's just a matter of what we collectively come up with to address the issue. ... I would suspect that there's going to be a real interest in trying to have serious conversations over the interim and lead into session with hopefully some viable options to help address the problem.”
Doerflinger said an increase in the rebate for horizontal drilling over what was projected three years ago is part of the reason for the decrease in revenue. As in many states, horizontal drilling has become the predominant drilling method in Oklahoma.
“Any fiscally responsible policymaker needs to seriously consider at what level government should incentivize something that is now standard practice,” Doerflinger said. “It's not responsible for government to give money away as an incentive if no incentive is needed.”
The latest Baker-Hughes rotary rig count showed 174 rigs engaged in exploration or development in Oklahoma, with 161 involved in horizontal drilling. In 2011, about 40 percent of all Oklahoma wells drilled were horizontal, up from 15 percent in 2006.
“The boom in the energy industry is improving Oklahoma's economy in so many ways, but the general revenue fund isn't seeing the benefits it would have before 2010,” Doerflinger said. “The 2010 law has led to some real revenue loss. In our estimation, policymakers should consider revisiting this law in consultation with the energy industry to determine whether it is fair and equitable to the industry, the state and all its taxpayers.”
‘One part of the whole economic equation'
Mike Terry, president of the Oklahoma Independent Petroleum Association, said the increased drilling resulted in more high-paying jobs, which were a factor in higher income and sales tax collections for the state. About 27 percent of all taxes come from oil and gas activity, he said.
“He's only looking at one part of the whole economic equation,” Terry said. “It temporarily reduces the gross production tax, but overall in all the other taxes that are paid by the industry — they are increased dramatically.