Senate, House Leaders Offer Bill to Curtail Tax Break for At-Risk Wells

Print More

Oklahoma’s legislative leaders have filed an unexpected bill late in the session to curtail an oil industry tax break that was expected to reduce next year’s tax collections by $133 million.

Senate Bill 1577, authored by Senate President Pro Tem Brian Bingman and House Speaker Jeff Hickman, would eliminate the tax rebate for economically at-risk wells for any oil and gas production occurring after 2014. The bill was filed Monday and awaits consideration by the full Senate.

If approved, it would be a significant step toward reducing the projected $1.3 billion budget shortfall that will chop the operating budgets of most state programs during the fiscal year that begins June 1. Oklahoma Watch examined the ballooning cost of the at-risk tax credit in a story published in late March.

As written, the bill would direct the Oklahoma Tax Commission to not pay rebates for 2015 oil and gas production. Many well operators who qualified for 2015 rebates have already filed tax returns for that year. Industry spokesmen have said they would fight any effort to end the tax break before its previously scheduled sunset date of 2020.

Oklahoma Tax Commission spokeswoman Paula Ross confirmed that the legislation would erase much of next year’s anticipated $133 million rebate payout.

“Yes, it would,” Ross said. “The way it’s written, we would not be paying those rebates.”

She said she could not immediately determine whether it would eliminate substantially all of it.

The Legislature is scheduled to adjourn later this month. Legislative leaders, rank-and-file lawmakers and Gov. Mary Fallin are still wrangling over how to deal with the shortfall. Big cuts for most state programs appear likely unless lawmakers find a way to boost tax collections or raise other revenue.

Bingman, R-Sapulpa, and Hickman, R-Fairview, could not be reached for comment. Senate and House communications officials said the measure had been filed under rules that allow legislative leaders to introduce bills at any time during a session. They declined to elaborate on the bill’s impact.

Fallin’s press secretary, Michael McNutt, declined to discuss whether the measure has the governor’s support.

“It’s our understanding that this is a work in progress, so we don’t have a comment at this time,” McNutt said.

Created in 2005, the at-risk tax rebate was designed to cushion the blow of low oil and natural gas prices on operators of low-volume “stripper” wells, many of which were drilled decades ago and eke out fewer than 10 barrels of oil a day.

Two years ago, Oklahoma crude oil was selling at the wellhead for about $100 a barrel and natural gas between $3 and $5 per thousand cubic feet (MCF).

This year, oil prices have fallen to about $40 a barrel, and natural gas typically sells for less than $2 per MCF.

The at-risk tax rebates totaled $11 million two years ago. The cost to the state rose to $41 million during the current fiscal year and is expected to more than triple to $133 million next year as the full impact of low oil and gas prices is absorbed.

In March, Tax Commission officials said they were expecting to pay out a total of $158 million in rebates next year. On Wednesday, Ross said that figure included a few miscellaneous rebates besides the at-risk well provision. The current estimate of next year’s payout for that rebate alone is $133 million, she said.

The rebate allows operators to recover 6/7ths of the gross production tax they paid to the state if their end-of-year accounting shows that a well was not profitable.