There is no question the Oklahoma rig count is falling. A major factor is the recent sharp decline in the price of crude oil. Insisting on a 3-point reduction in the gross production tax is not a solution to keep rigs drilling in Oklahoma.
If anyone would make a drilling decision based on a 3-point tax difference then their business model needs serious revision. At $50 per barrel, a 3-point difference would be $1.50 per barrel. A few days ago, the daily price of crude oil fluctuated by $2.21 a barrel.
The other major fact is that the Permian Basin in Texas has long been the absolutely dominant basin for oil and gas production in the U.S. The tight rock from which the historic production has been derived is commonly 2,500 feet thick, compared to an average of perhaps up to a few hundred feet in the reservoirs that make up similar Oklahoma plays. Too many “straws” in Oklahoma’s SCOOP and STACK plays are now reducing prior projections of estimated oil and gas reserves. Companies are reporting that additional wells are also damaging their own straws and their neighbors’ straws. By the way, hundreds of established vertical wells have been destroyed by horizontal frack jobs. The analysts have become more critical of the potential of Oklahoma plays, especially in comparison to the Permian Basin, but also compared to the Bakken in North Dakota and the Eagleford in Texas.
In my opinion, any migration of rigs is not due to the gross production tax. Common sense dictates that low-priced crude oil and natural gas coupled with an overly ambitious drilling program are the problem.
So even if Oklahoma were to make the decision to eliminate the gross production tax completely on these wells, it still wouldn’t make a difference compared to other basins in other states. Does anyone think it would be smart to subsidize drilling in Oklahoma by taking even more out of a state budget that is just now recovering? We hope not.
Oklahoma has a long history, at least until now, of conservation of our resources so that future generations will have access to them. Geology and the price of oil and natural gas determine the decision where to drill. That is as it should be.