Art and Yvonne Platt lost everything due to horizontal fracking.
The Tulsa World
Op-ed by Dewey F. Bartlett, Jr., OEPA Chairman
The members of the Oklahoma Energy Producers Alliance are proud to have led the way for a flat 7% gross production tax for all wells to pay our teachers properly. We went as far as organizing an initiative petition drive to let the voters decide.
The Legislature compromised at 5% GPT for new wells. This was a huge win for the state and a compromise we supported. The improvement of teacher recruitment and tax revenue are now the result, as promised.
But the narrative of the big oil company association continues to be that they are overtaxed even after the 5% GPT compromise. To imply that a lowering of the GPT will keep rigs from leaving Oklahoma is simply poppycock! The compromise of 5% GPT is still lower than the GPT in other major producing states.
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.
Daisy Creager | The Journal Record
A bill creating a task force to evaluate the impacts of new drilling on existing wells, a topic that has horizontal and vertical drillers at odds, is moving to the Oklahoma Senate Appropriations Committee after winning unanimous approval from the Senate Energy Committee on Thursday.
Mike Cantrell | The Journal Record
Number four of the Rotary Club’s Four-Way Test – whether something is beneficial to all concerned – comes to mind when observing the ongoing dispute between a segment of the state’s oil and gas industry and the state’s county commissioners and municipal governments.
The Oklahoma Energy Producers Alliance, made up of small oil and gas producers across Oklahoma, respectfully disagrees with the state’s big oil and gas producers over House Bill 2150, which would strip virtually all authority of local and city governments over the oil and gas industry.
In our view, that is a serious overreach. The most egregious hypocrisy of this bill is that it hides the true intent behind the “rights of mineral owners.”
If enacted, this bill will create a backlash over time, harming our relationship with our fellow citizens.
The state’s oil and gas industry has enjoyed unusual support from the state’s elected officials. That support should be honored as a covenant with Oklahoma to always measure our political initiatives with the best interest of the citizens of Oklahoma in mind. If that unwritten covenant is not honored, our industry will inevitably suffer in the long run.
The horizontal frackers and their trade association maintain they should be allowed to use the county rights of way to lay “temporary lines” to transport water from location to location regardless of the authority of the state’s county commissioners. A recent state Supreme Court decision reaffirms that the “Oklahoma Corporation Commission has exclusive jurisdiction over oil and gas operations” – an assertion with which we largely agree.
Daisy Creager | The Journal Record
The Oklahoma Corporation Commission will consider a rule proposed by Devon Energy that would require vertical drilling operators to take action to reduce environmental impact of horizontal drilling prior to and during the drilling process.
The rule will need to receive two out of three votes to progress to the state Legislature for consideration.
Matt Skinner, public information officer for the OCC, said currently well hits are required to be reported only if there is pollution, but the commission began urging the reporting of well hits that do not involve pollution in 2017 so the OCC could collect data.
Since then, the OCC has received 49 reports of incidents that did involve pollution and 74 reports of incidents not involving pollution, Skinner said.
Mike Cantrell, president of the Oklahoma Energy Producers Alliance, said the organization is against the rule, which would affect smaller oil and gas companies more than large ones.
Mike Averill | Tulsa World
Some vertical well operators are concerned about a proposed revision of oil and gas conservation rules determining the responsibility for environmental cleanup in cases involving horizontal drilling.
Leaders of the Oklahoma Energy Producers Alliance, which represents vertical producers, believe the revisions would unfairly favor horizontal drillers.
At the core of the issue is determining what party is responsible for environmental cleanup in cases when a horizontal well causes fracking fluid and sand to come up through an existing vertical wellbore.
“We need to come to a place where we have a good, reasonable solution so everyone’s interests can be met in a proper fashion,” said Dewey Bartlett, OEPA board chairman.
Devon Energy has proposed language to the corporation commission that would formally place the responsibility on wellbore operators, upon receipt of timely notice of hydraulic fracturing near its wellbore, to actions prior to and during fracturing operations to prevent an environmental impact.
Richard Parrish, an Oklahoma City-based attorney representing the OEPA, told members of the group during a meeting Friday that there have been several recent cases where horizontal hydraulic fracturing resulted in pollution through a producing wellbore and the corporation commission determined the vertical operator was responsible for cleanup.
“The horizontal operator is not being required to limit their frack or concern themselves or make sure the wells being fracked won’t cause purging,” Parrish said. “This is going to be a real problem around the state. We know of at least 47 incident reports of wells purging as a result of horizontal fracks.”
Members of the OEPA are trying to gather support in opposition of the pending revisions and are proposing an alternative revision stating that horizontal well operators giving notice of hydraulic fracturing operations should be required to take reasonable actions to prevent environmental impact.
“There is a need to find common ground for the benefit of Oklahoma,” Bartlett said. “Each one of us represents a company that has an owner and a lot of employees and their families. By us finding a common ground it means the breadwinners will be able to continue to support their family in a good way.”
The Williams well in Kingfisher County was fracked into in January 2019. Frack fluid came up our wellbore and overflowed the tanks.
David Blackmon | Forbes
With various state legislatures gearing up around the country, it is timely to take a look at how the oil and gas industry might be impacted in some of the key oil patch states. Two of the big ones – Texas and Oklahoma – are especially interesting for different reasons.
This state’s legislative session will be interesting for entirely different reasons. Oklahoma has found itself in a chronic budget deficit situation since the oil price collapse took hold in 2015. Production and ad valorem taxes on the industry fund a sizable portion of the state’s government, and the industry’s level of activity also impacts the state’s income and sale tax collections, either positively or, as during the downturn, negatively.
However, things are looking somewhat better going into this year’s session, which convened on Tuesday. State Treasurer Randy McDaniel informed legislators on Wednesday that the state’s revenue collections for 2018 rose by 13%. Leading the way was the state’s gross production tax (GPT) on oil and natural gas, which was up by a whopping 84% year over year.
This is no surprise for a couple of reasons:
- The Oklahoma GPT is a price-sensitive tax, and crude prices rose substantially for most of 2018; and
- The legislature, in its ongoing efforts to balance the budget during the downturn, raised the rate of the tax significantly in both the 2017 and 2018 sessions.
Unfortunately for the industry, the recent pullback in both oil and natural gas prices is causing concern that state revenue from the industry could drop again in 2019. This is encouraging the the same groups and individuals who agitated in favor of raising rates the past few years to once again push legislators to raise them even higher this year. One such group is the Oklahoma Energy Producers Alliance (OEPA), a coalition that represents a small number of vertical-well producers who don’t drill many wells in the state.
Another vocal advocate for raising the GPT rates in recent years has been billionaire George Kaiser, one of the founders of the Kaiser Francis Oil Company that is based in Tulsa. Kaiser’s own investments are widely diverse and global, including investments in solar (his foundation held a $340 million stake in now-bankrupt solar panel manufacturer Solyndra) and an LNG company with both domestic and international operations headquartered in Texas called Excelerate Energy. Kaiser’s major investments in other states, countries and renewables, none of which bear any tax that corresponds to the Oklahoma GPT, make him seem an unlikely advocate for raising tax rates on Oklahoma producers. As a result, his vocal support for higher taxes caught many of his industry peers off-guard, and greatly complicated the issue for the industry’s advocacy groups.
While the prospect of oil and gas-related tax collections falling in 2019 is understandably concerning to the legislature, the members have a real balancing act to perform. Even with the higher oil price during 2018, the Baker Hughes rig count in the state’s prolific SCOOP/STACK play dropped by almost 20% as the GPT rates rose. This was a highly predictable outcome given that producers’ capital dollars will chase projects with the highest anticipated rate of return on investment.
It is no surprise that raising the rates each of the last two years has led to a lower horizontal rig count. These lower initial rates (they rise back to the standard 7% rate after an initial production period) were put in place to stimulate the drilling of horizontal wells and attract capital dollars into the state in the first place. A higher rate of tax equals a lower rate of return. It isn’t real complicated.
Incoming Governor Kevin Stitt gets it. He warned lawmakers in December not to consider the stronger revenue situation as some sort of “blank check,” and encouraged them to conserve as much of the surplus as possible. “Obviously, if commodity prices go down, that’s the reason we need to have a very tight savings plan,” Stitt said.
Meanwhile, representatives of the oil and gas industry at large are expressing their own hopes for a “quiet” session after the wild ones they’ve been through the past two years. Chad Warmington, President of the industry trade association OKOGA-OIPA, told reporters on Monday that “Peace and quiet was on our Christmas wish list.”
It will be very interesting to see if his Christmas wish is fulfilled. Given the complexity of the issue, it doesn’t seem likely.
Ben Steverman | Bloomberg
Hailing from opposite ends of the ideological spectrum, George Kaiser and Harold Hamm have each invested heavily in the Sooner State.
George Kaiser, a 76-year-old Oklahoma banker and oilman giving away almost his entire $10.5 billion fortune, wants higher taxes on his own industry. He’s bankrolling trendy neighborhoods in Tulsa, an early-childhood education program and a movement toward criminal-justice reform. Kaiser says his priority is to wean the state’s economy from “cyclical, commodity-based industry.”
Harold Hamm, founder of Oklahoma City oil-and-gas giant Continental Resources Inc., has fought to keep things as they are: lean budgets, lax environmental regulations and low fossil-fuel levies. With a net worth of $13.8 billion according to the Bloomberg Billionaires Index, he funds the state’s most conservative politicians while arguing for higher taxes on wind turbines sprouting on the rolling hills. Hamm, 72, has promised to donate most of his money to “causes that will enable people with ambition and tenacity to achieve their goals.” So far that’s included millions for research on what he calls the “American energy renaissance”—a doubling of oil production since 2011.
“You couldn’t find anybody more different than those two guys,” said Mike Cantrell, a former Continental Resources executive who is president of the Oklahoma Energy Producers Alliance, a group of small oil companies that campaigned for higher taxes to fund education. “They both care a great deal about Oklahoma, and both are tough and brilliant businessmen.”