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May 23, 2014

New wells to pump with lower taxes

NORMAN — The Legislature set a new production tax rate for horizontal oil and natural gas wells on Thursday, in a move opponents called a victory for big energy companies.

Proponents of the new tax said failing to act — or raising the tax too much — would drive the booming industry and corporations based here to other oil-rich states, like North Dakota or Texas.

“If we mess this up, it will have incredible ramifications, I believe, in the future,” said Rep. Josh Cockroft, R-Wanette, adding that the tax will “define the future of our state.”

The plan now heads to Gov. Mary Fallin for her signature.

In 1994, lawmakers adopted a tax break that charged oil businesses a 1 percent production tax on horizontal wells during the first four years of use.

Horizontal drilling was a risky technology at the time. Today it accounts for about 70 percent of the state’s wells.

And the four-year window is important, since half of the productivity of a typical well happens within that period.

The tax break was set to expire in mid-2015, returning the production tax to its normal 7 percent rate. Instead, lawmakers agreed to a 2 percent rate for the first three years of a well’s production, followed by the standard 7 percent.

Opponents said the state should have waited another year before setting a new rate. They argued a 1 percent increase wasn’t enough, and that the Legislature should have asked experts to recommend competitive tax rates for an industry that provides about a third of the state’s annual revenue.

“This bill continues a huge, unnecessary subsidy for drilling that would have happened without the subsidy,” said David Blatt, executive director of the Oklahoma Policy Institute, a liberal-leaning think tank in Tulsa, in a prepared statement.

“It sides with a few well-connected oil executives and their lobbyists whose views do not represent the majority of Oklahomans or even many members of the industry. Instead of investing in Oklahoma while the energy boom lasts, this bad deal gives away our prosperity,” he said.

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