Top 10 reasons Oklahoma should restore 2% gross production tax rate to 7%. 

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Correction:

Representative Jon Echols replied that our last sentence in our top 10 reasons to raise GPT  letter was in need of correction.  We always intend to be accurate and we missed one here.  We said:  “It’s disingenuous to call the negotiation which resulted in the 1% rate going to a 4% rate a tax increase. It was sunsetting and would have gone to 7%. So in practicality, it was a tax  decrease.”   

While there was no intent to mislead, it was a misstatement of the facts that we wish to correct. The negotiation that resulted in the 1% rate going to 4% was additional tax revenue and the 4% rate will still go to 7% after the original 48 months from the drilling of the wells. So the best case scenario is that a well drilled June 30, 2015, would still have a 4% rate for only 24 more months, at which time the rate would increase to 7%.  We stand by our position that this was a trade-off to protect the 2% rate without giving up much in reality.  

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1. Even at 7% GPT, Oklahoma’s effective rate on oil and gas production would still be the lowest overall tax rate of any major oil and gas state. Much of that is due to the fact that Oklahoma doesn’t levy ad valorem tax on oil and gas minerals in place. Almost all other major producing states do have property tax on minerals.

2. Oklahoma is home to two of the most prolific and economic world-class oil and gas players (Scoop and Stack). Public oil company presentations inform us that these Oklahoma plays have the lowest break-even cost (+/-$24.40/barrel). These oil and gas assets will be drilled regardless of a marginal increase in the tax rate.

3. Using companies own reporting numbers rate of returns are as high or higher than in North Dakota (May 2017) – and comparable to Texas; there is no need for a 2% tax rate.

First-year returns reported as:

  • ND Bakken – 40-50%
  • Okla Stack- 100%
  • Okla Scoop-70%

4. Changing the 2% rate to 7% would impact only a small number of taxpayers, most of whom are the same big oil companies that pay the higher rates everywhere else.

5. If having a 2% tax rate is so crucial to big oil company profitability, why aren’t these same companies threatening to pull out of North Dakota and Texas? Why aren’t these companies moving their headquarters or their major drilling operations to Oklahoma? Why aren’t the big oil lobbyists descending on the North Dakota and Texas capitals threatening them with leaving if they don’t lower their rate to 2%?

6. There is absolutely no correlation between tax rates and the rig count! You drill where the oil and gas is!

We get the same economic benefit from a 7% rate as a 2% rate.

7. This tax break for big oil producers vs small, vertical producers is 71.4% (the difference between 2% and 7% tax). Most of this massive tax subsidy goes to out-of-state stockholders, investors, foreign companies (partners) and even foreign governments. So Oklahoma really doesn’t get a significant bump from the multiplier effect of a low tax rate.

8. Horizontal frack jobs are destroying hundreds of marginal, but still profitable vertical wells which pay a 7% rate. (Damage to 451 wells has been documented in Kingfisher County alone!)

9. Horizontally fracked wells recover 60-80% of all the oil and gas within the three-year period of the 2% rate. With low oil prices, we are incentivizing the accelerated taking of a valuable but finite resource at low prices. Whatever happen to conservation and allowables?

10. Bottom line, this massive tax subsidy is a fairness issue. Why should operators of 2,000-6,000 barrel per day wells only pay 2% when low-volume stripper wells, most only marginally profitable at today’s prices, are just hanging on… and must pay 7%?

Speaking of fairness, horizontal drillers championed the repeal of several minor tax provisions which meant nothing to them just so they could claim that their taxes have been “dramatically” raised already. It’s disingenuous to call the negotiation which resulted in the 1% rate going to a 4% rate a tax increase. It was sunsetting and would have gone to 7%. So in practicality, it was a tax decrease.

Your call to action is:

  1. Call Governor Fallin at (405) 521-2342 and ask her to support restoring the 2% GPT to 7%.
  2. Contact your Legislators at  https://okpolicy.org/resources/find-your-legislator/ and tell them to put Oklahoma first and restore the GPT from 2% to 7%.

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