End the special tax break for oil and gas producers

Download this advocacy alert as a 1-page fact sheet.

Oklahoma is set to enact a budget that will harm our communities and economy and put the lives of vulnerable children, veterans, and seniors at stake – unless we are willing to take sensible steps to end unaffordable and unnecessary tax breaks. Oklahoma’s historical tax rate on oil and gas drilling is 7 percent, but a special tax break gives the industry a 2 percent rate for the first 3 years of any new well. Restoring the gross production tax to 7 percent on all wells can bring in over $300 million in additional revenue for next year’s budget and even more in future years, helping us avert catastrophic cuts and putting the budget on a more sustainable path.

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What You Can Do

From talking with legislators, we know that a strong majority are in favor of raising the gross production tax – but legislative leaders have refused to allow a vote on restoring the GPT. Please call Speaker Charles McCall and Senate President Pro Tem Mike Schulz today and insist that they allow a vote on restoring the gross production tax.

Here’s some sample language for you to #CallMcCall

(405) 557-7412 “Hello, Oklahoma is in a crisis and I am calling to insist that Speaker McCall allow a vote to restore the gross production tax to 7% for ALL oil and gas drilling. “

Here’s some sample  for you to #Shout2Schulz!

(405) 521-5612 “Hello, Oklahoma is in a crisis and I am calling to insist that President Pro Tem Schulz allow a vote to restore the gross production tax to 7% for ALL oil and gas drilling. “

Once you’ve called the Speaker and Pro Tem, call your own Senator at 405-524-0126 and your House member at 405-521-2711. You can also look up contact info for your legislators here.

You can also sign up to be part of the Save Our State coalition supporting a sensible, comprehensive plan – the Blueprint for a Better Budget –  that puts our budget on a sustainable path, averts further budget cuts, and invests in key priorities in education, health care, and public safety.

The Facts

  • Oklahoma’s tax rate on oil and gas is the lowest of any major oil and gas producing state (see chart).
  • Restoring the gross production tax to 7 percent for all wells can raise over $300 million for next year’s budget (see here for more information)
  • Energy groups representing the largest oil companies claim that ending the tax break for oil and gas drilling will drive investment out of Oklahoma, resulting in the loss of high-paying jobs and state tax revenue. But state tax rates and tax breaks are of very minor significance in determining companies’ decisions on where and when to drill, and are rarely decisive for the profitability of drilling. A survey of Oklahoma oil and gas companies found tax incentives to be the least important factor affecting drilling decisions.
  • Oklahoma will remain an attractive location to drill due to our ample reserves, existing levels of production, skilled workforce, and established infrastructure. Even if some companies give up their claims here, others will be ready and eager to step in.

Myths and Facts about the Gross Production Tax (download this as a PDF)

Myth #1: Increasing the gross production tax will hurt revenue by driving business out of the state.

The Facts: It’s a well-known industry fact that oil and gas companies drill where geologists locate new productive areas, not where production taxes are lowest. After the gross production tax is brought back to historical levels, we will still have the oil and gas reserves, pipeline and drilling infrastructure, skilled workforce, and light regulations that have made the state a popular place to drill throughout our history.

Myth #2: Increasing the gross production tax rate will only raise $20 million next year.

The Facts: That estimate assumes we would charge the higher rate only for new wells and allow all of the wells already drilled in the state to continue paying only 2%. There’s no good reason to do that because it is not necessary as a business incentive (see Myth #1). If Oklahoma restored the 7% rate on drilling for all wells, that could bring in about $310 million in new revenues for next year’s budget and over $450 million on an ongoing basis (See this blog post explaining the revenue impact of restoring the gross production tax).

Myth #3: We cannot legally change the rate on wells that have already been drilled.

Oklahoma can legally change a higher tax rate on oil and gas production in exactly the same way as we can raise taxes on cigarettes and motor fuels. As a recent memo by Oklahoma tax experts Jerry Johnson and Michael Clingman explained, “The gross production tax is a tax on production and the incidence of the tax occurs when the oil or gas is actually produced. It is appropriate to adjust the rate for future production.”

Myth #4: The oil and gas industry already pays more than its share of other taxes in Oklahoma.

The Facts: Research funded by some in the oil and gas industry claims that they already pay more taxes than any other industry in the state. That research is still being shared by oil and gas lobbyists even though it’s been thoroughly debunked. For example, using estimates and projections, the report claims that they paid $159.1 million in corporate income taxes in FY 2015, but the actual data for 2015 show this sector paying less than $4 million.

Oklahoma’s effective tax rates on oil and gas drilling are also way below our peer states. In 2016, drillers in Oklahoma paid an effective rate of 3.2%. That’s less than half what they pay in Texas (8.3%) and less than one-fourth what they pay in Louisiana (13.3%), places where there is still plenty of drilling happening.

Download these myths and facts as a PDF

Notable Quotes

“For most of our adult lives, we have owned working interests in Oklahoma and Texas wells. The severance tax rates have never made a difference to us or our partners when we selected the best prospect.” – Peter Henry, Tulsa World, April 14, 2017

“We believe the oil industry should stand up and agree that returning the oil and gas production tax to its historical level demonstrates our commitment to help solve this serious state budget crisis.” – Dewey Bartlett, Jr., former Tulsa mayor, president of Keener Oil and Gas

“After working in oil and gas prospect generation for years, I can tell you that we never gave any thought to the severance tax rate. If the product price and geology was good, the project was a go.” – Jamie Myers, Tulsa World, April 14, 2017

“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.” – Tom Ward, CEO, Tapstone Enegy, former CEO, Sandridge Energy

 “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.” – George Kaiser, owner of Kaiser-Francis Oil Company.

 “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.” – Finance Secretary, Preston Doerflinger

“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.” – Rep. Pat Ownbey (R-Ardmore)

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Gene Perry worked for OK Policy from 2011 to 2019. He is a native Oklahoman and a citizen of the Cherokee Nation. He graduated from the University of Oklahoma with a B.A. in history and an M.A. in journalism.

One thought on “End the special tax break for oil and gas producers

  1. Thanks for having this info available. I knew I could count on you as a source for statistics and quotes when writing my legislators on the subject. Your work makes a difference!

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