The Journal Record
May 7, 2018
OKLAHOMA CITY – Looking back on the legislative session, two of the state’s oil and gas trade groups said the year was an overall disappointing one, but the industry did see a few small victories.
When the Oklahoma Legislature passed a massive tax increase package for the first time in nearly 30 years, members included a spike in the gross production tax’s incentive rate. Those companies pay a percentage of the revenue equivalent on each barrel of crude. The standard rate is 7 percent; for the first 36 months, they had been paying 2 percent. House Bill 1010 increased that incentive rate to 5 percent.
Two trade group presidents said the increase was disappointing for several reasons, including the heightened volatility the revenue source introduces into the state budget and the lower tax increases on other industries such as wind energy.
Chad Warmington, president of the Oklahoma Oil and Gas Association, said there seems to be a consensus that the state needs to diversify its economy and its tax base, but that some of the same lawmakers pushing that idea also push further reliance on gross production taxes. He noted that the industry’s economic outlook is cyclical, and there for every boom, there is always a bust.
“Now the state has made themselves even more dependent on what we know is a volatile revenue source,” he said. “It’s hard to get anything other than a failing grade from us.”
Tim Wigley, president of the Oklahoma Independent Petroleum Association, said the increase was also upsetting to him and his colleagues because it was higher than it was in the Step Up Oklahoma proposal.
Step Up Oklahoma was a coalition of business leaders that had organized a budget plan as well as a litany of policy updates. That proposal included a production tax incentive rate increase, but it would have been to 4 percent, not 5 percent. That plan also would have placed a new gross production tax on wind energy. It would have also raised other tax rates, such as the one on cigarettes, more than HB 1010 ended up doing.
“We said from day one, we’re OK doubling our tax from 2 percent to 4 percent so long as these other people stay in the plan,” he said. “The only group that was part of Step Up that had their tax increased (as much in House Bill 1010 as in the Step Up plan) was oil and gas.”
He and Warmington said the outcome seems to reward other industries for refusing to play, and that it was a slap in the face to their own industry.
However, there were some policies with outcomes that industry representatives said elicited some gratitude.
For example, state Sen. Lonnie Paxton, R-Tuttle, filed a bill that would allow municipalities to enact some additional mitigation requirements. Warmington said the measure, Senate Bill 1257, would have shifted those responsibilities away from the Corporation Commission, which is better equipped to handle it.
Paxton filed the bill because a company drilled a well 30 feet from a neighborhood in his district. Warmington said that Paxton pulled his bill, even though he and his constituents were upset about the incident.
“Frankly, they had a right to be,” Warmington said. “The company that was doing that is now no longer. It’s been absorbed into another company.”
Warmington said he and his peers were supportive of House Bill 2775, which adjusted interest rates on proceeds companies incur on leases not paid to unclear titles. It sets the prime interest rate at the one reported in The Wall Street Journal.