January 21, 2016

Sales Tax Break Authored by Senate President Benefits His Employer

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A sales tax exemption approved in 2005 applies to electricity used in "waterflood" oil recovery projects in older fields, such as the Glenn Pool field shown above, with Sapulpa in the distance.

Oklahoma Historical Society

A sales tax exemption approved in 2005 applies to electricity used in “waterflood” oil recovery projects in older fields, such as the Glenn Pool field shown above, circa 1910, with Sapulpa in the distance.

State Sen. Brian Bingman

State Sen. Brian Bingman

An obscure sales tax break authored by Oklahoma’s Senate leader is subsidizing an expensive form of enhanced oil recovery for seven companies, including the senator’s employer.

The tax break on electricity used to power old “waterflood” recovery projects was authored in 2005 by now-Senate President Pro Tempore Brian Bingman, R-Sapulpa.

The first company to apply for and receive the exemption was Uplands Resources Inc. of Tulsa. At the time, Bingman was the company’s land manager. He currently works there as vice president of land and operations.

The financial cost to the state is not huge. According to the Oklahoma Tax Commission, the waterflood tax break reduced state revenue by an estimated $2 million during the 2013-2014 fiscal year. That’s only a drop or two of the estimated $901 million budget hole currently facing state lawmakers.

The environmental cost appears negligible. Waterflood projects typically recycle well wastewater back into relatively shallow reservoirs to force more oil and water to the surface. The project sites do not appear to correspond with the state’s continuing spate of earthquakes, which have been linked to deeper wastewater disposal wells.

Still, the waterflood exemption appears to illustrate the kind of legislative logic that led to enactment of scores of business tax breaks over the years, at a cost to the state of hundreds of millions of dollars.

“I thought it was good policy,” said Bingman, R-Sapulpa. “Yes, Uplands did benefit from that … (but) I thought it was something good to do for the small operators, for the whole industry.”

Bingman’s sponsorship of the bill did not appear to violate conflict-of-interest rules because the tax break was made available to all oil companies, not just to his employer. “The ethics rules really don’t apply to that, if it treats everybody in the same class the same way,” said Ashley Kemp, deputy director of the Oklahoma Ethics Commission.

'Waterflood' Tax Exemptions

The following companies and well sites were granted exemptions from paying sales tax on electricity used to power "waterflood" oil recovery operations.
10/20/2009Chaparral EnergyNorth Burbank UnitOsage
11/23/2009Chaparral EnergyNorth Burbank UnitOsage
11/23/2009Chaparral EnergyNorth Burbank UnitOsage
11/23/2009Chaparral EnergyNorth Burbank UnitOsage
4/14/2008Citation Oil & GasHealdton Arbuckle UnitCarter
5/2/2008Citation Oil & GasHealdton V UnitCarter
5/3/2008Citation Oil & GasHealdton VI UnitCarter
5/5/2008Citation Oil & GasHealdton III UnitCarter
5/23/2008Citation Oil & GasHealdton IV UnitClark
6/18/2015Grand Resources Inc.South Maid UnitSeminole
6/4/2009SouthBurbank Petroleum Corp.Kiefer UnitCreek
7/1/2009SouthBurbank Petroleum Corp.Spacogee UnitCreek
7/1/2009SouthBurbank Petroleum Corp.Berryhilll UnitCreek
8/5/2009SouthBurbank Petroleum Corp.Berryhilll UnitCreek
8/5/2009SouthBurbank Petroleum Corp.Spacogee UnitCreek
11/15/2014Topsail Secondary Recovery LLC.Iron Post Prue Sand UnitCreek
11/15/2014Topsail Secondary Recovery LLC.Iron Post Prue Sand UnitOkfuskee
8/27/2007Uplands Resources Inc.Unit 037-33366Creek
8/5/2015XTO Energy Inc.Simpson Voorhees WaterfloodCarter
9/9/2015XTO Energy Inc.Hewitt Unit WaterfloodCarter

Source: Oklahoma Corporation Commission.

The waterflood tax exemption was not included in a list of 75 business incentives that will be presented to the state’s new Incentive Evaluation Commission for possible scrutiny. The panel will refine the list and begin its tax break reviews as soon as all seven members are appointed.

But Bingman said he would have no objection to putting the waterflood break on the review roster.

“Absolutely,” he said. “Every tax credit needs to be looked at. Everybody’s got to be subject to the same scrutiny. The sooner, the better.”

Gene Perry, policy director for the independent Oklahoma Policy Institute in Tulsa, said the waterflood exemption appeared questionable. Among other things, he said he
doubted that the exemption had stimulated much, if any, job growth, a primary objective of many business incentives.

“It’s an incentive for basically the most marginal economic activity … It’s definitely not going to be a growth industry,” Perry said.

The waterflood tax break was created in 2005 during Bingman’s first term in the Oklahoma House. He said he got the idea after talking to colleagues working for small oil companies in northeast Oklahoma, where a number of waterfloods are located.

Waterflood projects consume a lot of electricity because they use big submersible pumps to extract water and oil from the ground, and big above-ground pumps to inject wastewater back into producing formations.

HB 1498 waived the state’s 4.5-cent sales tax on electricity used to power the pumps, under certain qualifying conditions. Among other things, a project’s crude oil content can’t exceed 1 percent of the total volume of water and petroleum removed from the ground.

Companies must apply to receive the exemption. The Oklahoma Corporation Commission determines whether each project qualifies. Once approved, the exemption remains in place even if oil production creeps above 1 percent.

So far, seven companies have received approval for 17 exemptions.

Uplands Resources received the first exemption in 2007. It applies to a waterflood project in eastern Creek County, not far from Bingman’s hometown of Sapulpa.

Bingman said the project involves wells in the old Glenn Pool field, one of the state’s first big oil-producing areas. He said some wells there were drilled as far back as 1905.

He said he thought the small companies operating these projects deserved a break, because they were paying a 7 percent gross production tax on the oil they produced. Bigger companies drilling new horizontal wells were only paying a 1 percent gross production tax at that time.

“I don’t own any interests in Uplands Resources. I just work for them,” Bingman said. “I don’t see that it’s any different than any other incentive that we pass for marginal wells. … It affect Uplands just like any other company.”

Bingman acknowledged that the waterflood exemption had not led to development of new oil fields or created new employment. But he said the tax break was extending the productive lives of some of the state’s oldest existing wells and preserving existing jobs.

“Once you have to plug those wells, those fields will never be re-drilled,” he said. “You’ve got to keep the wells producing.”

  • Charles Butler

    Just another example of how many legislators are looking out for themselves rather than the citizens they represent. I guess to them a couple of million dollars one way or the other is no big deal, but I wonder how many of those couple a million dollar deals are out there?