- Associated Press - Thursday, May 22, 2014

OKLAHOMA CITY (AP) - A bill to adjust a tax incentive for oil and gas production in Oklahoma is headed to the governor’s desk after the House and Senate both approved it on Thursday, one day before the Legislature is expected to adjourn the session.

The bill, pushed hard by oil and gas industry lobbyists, increases the 1 percent tax rate for horizontally drilled oil and gas wells to 2 percent for the first three years of a well’s production. After that, the rate would increase to the standard production rate of 7 percent. The tax rate on production from traditional vertical wells would drop from 7 percent to 2 percent for three years and then return to 7 percent.

Had legislators taken no action, the subsidy would have expired in July 2015 and the rate for all oil and gas production would have returned to 7 percent. Industry officials argued that rate could prompt many companies to move their drilling operations to other states.

“This isn’t just about some big oil company in downtown Tulsa or Oklahoma City. You’re talking about small, mom-and-pop businesses,” said House Speaker Jeff Hickman, R-Fairview, who authored the bill in the House. “It’s important that these wells are drilled in Oklahoma. It’s important that these jobs be created in Oklahoma.”

But critics say the subsidy is no longer needed, since oil and gas production is already a profitable activity.

The bill also eliminates three separate tax credits offered for certain other types of drilling activity.

The Oklahoma Tax Commission projects the bill will be revenue-neutral for the next two years, but beyond that cannot calculate how much it will cost the state because of fluctuations in commodity prices and drilling activity, said Tony Mastin, the commission’s executive director.

The bill passed the House 61-34 and the Senate 30-14. In the Senate, Lt. Gov. Todd Lamb broke a tie on a procedural vote after several senators wanted to amend the bill so that the new rates would expire after five years.

Gov. Mary Fallin has been involved in negotiations on the bill and is expected to sign it, said spokesman Alex Weintz.

Sen. Mike Mazzei, the chairman of the Senate Finance Committee, said the current tax incentive cost the state about $250 million in potential revenue last year.

“That’s the largest one-year tax subsidy we have on the books,” said Mazzei, R-Tulsa, who pushed for the five-year expiration date.

The tax incentive first approved by lawmakers in the 1990s dropped the tax rate for horizontally drilled wells from 7 percent to 1 percent, but that was when horizontal wells were experimental and costly. Now that around 70 percent of wells in Oklahoma are drilled horizontally, the reduced rate is costing the state hundreds of millions of dollars annually in potential revenue.

“This bill continues a huge, unnecessary subsidy for drilling,” said David Blatt, director of the Oklahoma Policy Institute, a think-tank that advocates for more funding for core state services. “Instead of investing in Oklahoma while the energy boom lasts, this bad deal gives away our prosperity.”



House Bill 2562: https://bit.ly/1lY5kgz


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