NOTE: This week, Oklahomans learned the state was on the hook to pay oil and gas producers $294 million over the next three years in deferred tax rebates for horizontal and deep well drilling in 2010 and 2011, an amount almost $150 million more than initially anticipated. The deferred payments came about as a result of legislation, HB 2432, passed in 2010 that provided several concessions to the oil and gas industry in how horizontal and deep well drilling is taxed. Here is the blog post we ran at that time explaining HB 2432 and expressing our concern about the potential costs of tax breaks to the industry. It has been edited to revise one error in the initial post and to link to an updated fact sheet.

In their efforts to find additional revenues for the upcoming budget year, legislative leaders and Governor Henry took some strong and politically risky steps to suspend tax credits for various forms of economic activity. But when it came to tax incentives for the oil and gas industry, expected to amount to some $150 million in FY ’11 and FY ’12, it was the industry that seemed to have the upper hand. HB 2432, which passed in the final days of session, allowed the state temporarily to defer incentive payments to oil and gas producers – but only in return for some permanent and questionable concessions to the industry. Read the rest of this entry »

When the Board of Equalization met last week and certified more revenue for the upcoming fiscal year, there was one word on everyone’s mind: Oil. Of the total $106 million increase in the February estimate compared to the Board’s initial estimate in late December, $64.3 million was attributable to expectations of higher oil revenues.  Higher revenue projections were based on the assumption of rising oil prices – the Tax Commission is forecasting an average FY ’12 price of $90.77 per barrel -  and increased production.

If these assumptions prove true, they will continue a rather dramatic shift in Oklahoma’s since 2008 as oil production has caught up to or surpassed natural gas production as an engine of growth in the energy sector.  After peaking in mid-2008, the price of both oil and natural gas plummeted in late 2008 and early 2009. Since then, the price paths of the two commodities, which usually move closely in sync, have diverged sharply, with oil reaching just under $90 per barrel in January 2011 while natural gas remains stuck at close to $4.00 per MCF. Read the rest of this entry »

OK Policy has released a new fact sheet looking at Oklahoma’s gross production taxes on oil and gas,which takes a special look at the tax exemptions offered for different forms of production. Over the past five years, producers have claimed $339 million in exemptions, or rebates, from the gross production tax, with almost three-quarters of the rebates claimed for deep well drilling and horizontally drilled wells, according to data supplied by the Oklahoma Tax Commission.

Most gross production tax exemptions are set to expire on June 30, 2009. The Legislature is considering two bills – HB 2062 and SB 313 that would extend the exemptions through 2012. So far, both bills have sailed through the legislative process with a minimum of debate. However, the titles have been stricken from the bills and they look headed to conference committee, which ensures that the Legislature will have at least one more opportunity to consider the matter before any extension of the tax exemptions is sent to the Governor.

Read the rest of this entry »