Credit: Trevor Brown / Oklahoma Watch

A plan to eliminate a costly tax rebate for economically at-risk oil and gas wells cleared its first key vote in the Oklahoma Legislature, a move that could help plug a portion of the state’s $1.3 billion budget shortfall.

The state Senate voted 37-6 on Thursday to approve Senate Bill 1577 and send the measure to the House for consideration, despite the objections of a trade group that said legislative leaders had reneged on a proposed compromise.

The bill would end a rebate that was created in 2005 to help operators of low-volume “stripper” wells that become unprofitable when oil and natural gas prices fall. Oklahoma Watch examined the tax break’s history and impact in a story published in late March.

The rebates totaled as little as $11 million a few years ago. But their cost to the state soared after oil prices plunged from more than $100 a barrel to less than $40.

State lawmakers said eliminating the tax break would save the state nearly $133 million during the fiscal year that begins July 1.

Senate President Pro Tem Brian Bingman, R-Sapulpa, said passage of the bill was critical in light of the unprecedented budget shortfall the state faces.

“There are too many (tax) credits out there, and I think we all acknowledge that,” Bingman said. “We said from day one, everything is going to be on the table this year.”

Only hours before the vote, the Oklahoma Independent Petroleum Association had announced its support of the bill, based on a compromise the industry group thought had been reached. The compromise would have capped the tax rebate at $25 million a year instead of eliminating it altogether.

Mike Terry, president of the association, said he believed that concession would have continued some support for operators of at-risk wells while also addressing the state’s budget crisis.

Terry said Bingman had provided the group with what it understood to be an amendment that he planned to introduce. The bill, however, passed without the Senate ever considering the $25 million cap.

In an interview after the vote, Terry said his group could no longer support the bill as written. He said completely eliminating the tax break would cause many low-volume wells to shut down.

He said he would be encouraging House to members to consider capping the rebate at $25 million.

“Well I’m kind of an optimistic person, so when they understand the issue, I think they’ll do the right thing,” Terry said.

Bingman said after the vote that there had been no final agreement on a compromise with the industry group.

The Senate leader said he was also hopeful that legislation would be introduced later in the session to eliminate tax breaks for the wind energy industry. But he said lawmakers were still working to craft a proposal.

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

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