Curbing the Horizontal Drilling Tax Break: Resources and Information

David Blatt // April 29, 2014 // Updated: May 2, 2019
Reports and Fact Sheets //

See also our Tax Reform information page and Budget and Taxes page for resources on other Oklahoma tax issues

Reports and Fact Sheets

 Opinions and Analysis

News Coverage

 Quotes

  • Kirk Humphreys, former Mayor of Oklahoma City: “Do I blame Larry Nichols for doing what he’s doing? No, it’s his job to negotiate as good a deal as he can. But it’s also Mary Fallin’s job and the Legislature’s job to represent our interests and negotiate as good a deal as we can… I’m urging the governor and I’m urging the Legislature, don’t blame Larry for doing his job, but you do your job, and you be as tough as he is.” (May 2014) (Source)
  • Tom Ward, CEO, Tapstone Enegy, former CEO, Sandridge Energy: “My years in the industry give me a unique perspective. I’ve overseen the budgeting process of drilling more than 10,000 wells. In each process there were many factors that we considered. However the implication of the gross production tax has never had a material effect on whether to drill or not to drill.” (Source)
  • Richard Moncrief, Senior Vice-President, Continental Resources: “From an economics standpoint, we think that the SCOOP economics are – range from the high 30s up to 80% type rate of return. And you compare that with the Bakken. In a lot of cases, it compares quite favorably to the Bakken’s. And so we’re just real excited about what we’re seeing down there.” (August 2013) (Source)
  • George Kaiser, owner of Kaiser-Francis Oil Company: “In addition to the fact that I think it has desperate consequences to the state, which is already suffering an inability to fund state services, I am absolutely confident that the rate of gross production or ad valorem in a state within a reasonable range of 0 to 12 percent has no bearing whatsoever in the economic activity in a state… The net effect of this tax reduction is a subsidy by the taxpayers of Oklahoma and the education system to predominately out-of-state shareholders of Oklahoma companies.” (May 2014) (Source)
  • Kirk Humphreys, former Mayor of Oklahoma City: “80 percent of our wells are horizontal. It’s where the action is. I don’t think that government should incentivize anything that is going to happen without the incentive, and believe me, baby, horizontal drilling is going to happen without the incentive.” (April 2014) (Source)
  • Don Millican, CFO, Kaiser-Francis Oil Company: “It certainly is a benefit to the oil and gas industry to receive that reduced rate, but it isn’t causing a particular behavior,” he says. “And if you’re going to have an incentive, it seems like it ought to cause a change in behavior.” “The energy industry doesn’t pay a lot of income tax because of the intangible drilling cost deduction. And we don’t have an ad valorem tax on oil and gas wells, like Texas does. So what is going to be their contribution to the running of the state? Severance taxes, historically, has been how the oil and gas industry has helped contribute their part to the state. And as corporate citizens, they ought to be contributing their part.” (Mar. 2014) (Source)
  • Rep. Pat Ownbey (R-Ardmore): “The tax break was given over a period of time so they could experiment with horizontal drilling, and it worked. It has done a great job, but the period of experimentation is over. … The companies are coming to Oklahoma because the oil is in the ground.” (Feb. 2014) (Source)
  • John Brock: “It’s hard to give up an incentive tax break after 20 years, but it’s time to “give the taxpayers a break” and restore the gross production tax to the same as normal oil and gas wells.” (Jan. 2014) (Source)
  • Jennifer Carr, Tax Analysts: “Oklahoma’s policy of exempting production from horizontal wells for up to four years goes way beyond encouraging innovation and reducing investment costs and exempts wells that oil and gas producers would drill and develop even without the exemption. Although horizontal wells cost far more to drill, even in states such as North Dakota, where tax rates are fairly high, the severance tax doesn’t seem to hamper growth. The length of
    Oklahoma’s exemption is unjustified.” (Jan. 2014) (Source)
  • David Blatt: “Every school district when it says ‘Where has our funding gone?’ can say it’s gone into the pockets of horizontal drillers. Every prison guard who hasn’t been able to get a raise can point to the same thing” (Jan. 2014) (Source)
  • Ken Levit: “The same activity is taxed at roughly 11.5 percent in North Dakota. Guess what? They’re drilling like mad in North Dakota!” (July 2013) (Source)
  • Finance Secretary, Preston Doerflinger: “Any fiscally responsible policymaker needs to seriously consider at what level government should incentivize something that is now standard practice. It’s not responsible for government to give money away as an incentive if no incentive is needed” (July 2013) (Source)
  • State Treasurer Ken Miller: “When those incentive packages were first designed, it was to help get high-cost gas out of the ground. Now as time has gone by and technology has improved so much, most of the gas that is coming out of the ground now is what was previously considered high-cost gas, and I think most of our drilling now is horizontal and deep.” (Jan. 2013) (Source)
  •  George Kaiser: “People are hurting. Let’s give the taxpayer a break during these difficult times and eliminate or limit this government largesse.” (Jan. 2009) (Source)

     

ABOUT THE AUTHOR

David Blatt // dblatt@okpolicy.org

Former Executive Director David Blatt joined OK Policy in 2008 and served as its Executive Director from 2010 to 2019. He previously served as Director of Public Policy for Community Action Project of Tulsa County and as a budget analyst for the Oklahoma State Senate. He has a Ph.D. in political science from Cornell University and a B.A. from the University of Alberta. David has been selected as Political Scientist of the Year by the Oklahoma Political Science Association, Local Social Justice Champion by the Dan Allen Center for Social Justice, and Public Citizen of the Year by the National Association of Social Workers.

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