The Double “Chumping” of Oklahoma

Big oil companies CEOs fly into OKC in their corporate jets and their $5000 Armani suits and hold press conference after press conference boasting about getting 2000-6000 barrel per day wells. They talk about how the Stack and the Scoop are the best plays in America with the lowest breakeven cost ($24.40 per barrel) and some of the best production rates.

Then they sell the Oklahoma legislature that they’re going to invest billions in taking more of a vital but finite Oklahoma resource at low oil prices; but only if they get to keep a 2% tax rate.

The cruelest and most cynical of all hypocrisies is to brag about how good our resources are but then to scare Oklahoma citizens by threatening that unless they get to pay a 2% tax rate they will take their rigs and go home!

We are waiting to see them tell the North Dakota and Texas legislatures that unless they lower their rates, from 10% and 8.5% respectfully, to 2%, that they will take their rigs away. Honestly, that would generate a good laugh in those states.

We should call their bluff. There are companies trying feverishly to get in on our oil plays.

Now mind you, every stripper well in the state pays 7% and the best rate for new wells anywhere else they drill is 8.3% (10% in North Dakota)!

It’s like we should all bow down and worship them for taking our resources on the cheap while our schools are bleeding teachers and our infrastructure crumbles.

The Oklahoma Energy Producers Alliance, made up of small oil and gas producers living all across Oklahoma, has commissioned a poll that shows that 67% of all likely voters (and 57% of Republican voters) want the 2% raised to 7%.

Our legislative leadership will likely listen to the Daily Oklahoman when they try to compare this poll result to a similar poll result on the sales tax initiative. Thats like saying the Dallas Cowboys have no greater chance of winning the Super Bowl than the Ada Cougars just because they both play football! The sales tax increase would have hit everyone. Restoring the 2% tax to 7% only cost the companies making out like bandits, who have no way to pass the cost on to the voters. This should be a no-brainer!

WC Fields said, ” if you look around the room and can’t spot the chump, it’s you!” The Oklahoma legislature is looking for the chump on a daily basis.

Perhaps it’s them!

We don’t even know if these companies are taking the 5% subsidy and funding their drilling in states where they pay a higher rate than they would here if the tax was restored to 7%.

By the way, to add insult to the injury, they are destroying hundreds of existing vertical wells that were paying 7% with their massive frack jobs! (451 in Kingfisher county alone)

Is there such a thing as being “double chump-ed”?

Mike Cantrell

Co- Chairman of the Oklahoma Energy Producers Alliance

Rebates in Texas would not apply to the wells like they are drilling in Oklahoma

Let us introduce you to Donelle Harder. She is the VP of the Big oil association in Oklahoma.

Below you’ll find her comments to a guest post (link) from a former industry insider who advocated for 7% GPT across the board and our response. Please reprimand us if we ever try to pull the wool over the public eyes like this.

They know that the rebates in Texas have no effect on the wells like they are drilling here.

The same similar rebates which we gave up voluntarily in Oklahoma last year also didn’t apply to their new horizontal wells; just to ours!

It’s time they put their skin in the game and agree to a 7% tax rate, which is still lower than the effective rate anywhere else they drill; and pay our teachers.

Donelle Harder:

In the meantime, here are all the different rates and incentives Texas offers for the gross production tax rate, so that people can look into it themselves. Oklahoma has ended all 11 gross product tax rebates over the past three years. As of July 2017, there are ZERO rebates to GPT in Oklahoma, unlike the several offered by Texas that drive down the overall rate of 7.5% to 3.7%. https://comptroller.texas.gov/taxes/natural-gas

 

 

Donelle, in full disclosure, folks should know you are the VP of the big oil lobby in Oklahoma.

Your response cannot have been sent from a position of a lack of knowledge. So it’s purpose must have been to mislead and confuse.

Yes, there are rebates in Texas. But none of them would apply to the wells drilled in Texas like are getting the 2% rate in Oklahoma. The rebate on gas is only on pure gas wells – those not coming off oil wells- and only then if the well makes less than 90mcf per day.

Virtually none of the horizontals being drilled in Oklahoma meet this criteria as they are either oil wells producing casing head gas or high condensate wells. And they make more than 90 mcf per day for the 3 years they get the 2% rate. On oil, the Texas rebate is virtually irrelevant. It only applies to wells making less than 15 barrels per day and then only if oil is less than $30 per day for three consecutive months.  This entire argument is bogus!

But you know that! You just think Oklahomans are too uneducated to figure it out; which they will soon be if we continue to bleed teachers and fall even further behind in the education of our children.

We are on opposite sides of this issue but it is painful to watch an important segment of our industry using messages that are blatantly wrong hoping no one notices.

We want you to be better than that.

What the 2% rate is costing Okla in tax revenue

Article  in the IHS Drilling Wire

Here is an example of what the 2% rate is costing Okla in tax revenue in just 2 sections,- and that’s at $45 oil. This is almost criminal!! It also demonstrates how difficult this is to put in plain language every day Oklahomans can understand. Oklahoma reminds me of the brother Esau in the Old Testament story of Jacob and Esau. As I recall he sold his birthright for a bowl of stew.  We are selling our states birthright on the cheap!

OEPA

 

This article was sent to us by Steve Altman, a Petroleum Engineer and President of Brown and Borrelli Inc.

Article is from August 25, 2017, Volume 64, No. 164, page 5:

IHS Copyright and disclaimer, 8-25-17 <link>

 

Couple this with the previous article from July 14, 2017, volume 64, No. 134, page 1:

Devon frac density <link>

 

It talks about the Devon well completed for 6000 BOE/d.  On the second page, next to the last paragraph, Devon talks about their increased density pilot (Showboat) coming up in the third quarter where they plan to drill 25 – 2 mile lateral wells in sections 3 and 10 T16N R9W, landing in two upper Meramec intervals, one lower Meramec interval, and the Woodford.  This would make 6 wells per level, which would match their talk at the SPE luncheon a couple of months ago where they indicated 5 wells per landing zone, in their opinion, was not enough.

When you figure 25 wells and the payment is $2500 per acre, you are talking about $100 per acre ($200 for the 2 mile lateral) for a well that is making 6000 BOE/d.  That is a heck of a deal for them.

And the State of Oklahoma keeps taking it in the shorts on taxes.  Assuming $10,000,000 per well cost, and assuming the wells only break even, which takes $13,000,000 after taxes and royalty and operating, the gross income is $325,000,000.  The 5% GPT we lose is $16,250,000 in just these two sections, with 50% to 75% of that coming in the first three years.

It once again confirms what Joe Warren and others have been shouting from the rooftops: Forced Pooling is being used to artificially hold down lease prices.

Since the STACK play is now being talked about as an equal in quality to the Eagle Ford and Permian plays, the only difference in prices is Forced Pooling in Oklahoma.

By a factor of 10 or more!!

Steve Altman

 

OIPA demands Dewey Bartlett Jr.s Resignation

The Disintegration of a Petroleum Association

 

Dewey F. Bartlett Jr. Is a lifetime OIPA board member, former mayor of Tulsa, Former Chairman of OIPA, Former Chairman of the Oklahoma Energy Resources Board, former Chairman of the National Stripper Well Association and a leader in the Oil and Gas industry in America. For OIPA to demand that he resign his “lifetime” position on the board would be like asking Will Rogers children to give up their Oklahoma heritage.

 

Dewey Bartlett Sr. was the Governor and U.S. Senator of Oklahoma as well as a founding board member of the OIPA. The late Senator Bartlett coined the term “stripper well” in the American consciousness and passed significant legislation to save Oklahoma’s valuable natural resources.

We have no quarrel with the OIPA, even though we disagree on their responsibility to our state and to its conventional legacy producers. We might suggest they change their name to more adequately reflect who they represent to the “Oklahoma Horizontal Well Association.”

 

Click here for Letter from Wigley

 

Click here for Wigley Response