Oil industry’s significance returns to 1982-levels (NewsOK)

By Adam Wilmoth

Oil and natural gas activity in the state has nearly doubled over the past decade and has helped boost jobs, salaries and tax collections statewide, according to a report released Tuesday by the State Chamber.

The report found that the state is as dependent on the oil and gas industry today as it was in 1982, with 13.5 percent of the statewide total earnings derived from the industry.

“To me, the most important part of the report is that the degree of growth and influence of the industry over the past 10 years is much larger than I think most people recognize here in the state,” said Mark Snead, economist and author of the report.

“It has been a dramatic revival within the industry. It’s not just a nice surge in the industry. It has been a full-blown revival of the industry.”

Oil and natural gas employment has doubled over the past decade to 57,500, and average compensation per worker ballooned to $110,000 in 2012, the report stated.

The industry now hires 5 percent of the state’s wage and salary workers and pays 7.2 percent of all employee compensation in the state.

“The impact of the oil and gas industry runs through lots of different facets of our economy,” State Chamber CEO Fred Morgan said.

The report also showed the industry’s significance to state coffers.

“The oil and gas industry is the largest single source of tax revenue in the state, paying total direct state taxes of $1.96 billion in 2012, or more than 22 percent of all state taxes,” the report stated.

Oil and natural gas companies drilled 3,050 wells in the state in 2012, a figure that nearly doubled over the past 10 years.

State oil production has doubled since early 2010 to an annual rate of 120 million barrels. Natural gas production is up almost 50 percent to 2.2 trillion cubic feet per year.

The report also focused on the risk oil and natural gas producers take when they drill a well.

At an average of $3.85 million per well, the industry spent $11.7 billion in drilling expenditures in 2012, setting drilling costs equal to the inflation-adjusted level from 1981 at the height of the oil boom.

Legislative struggle

The report was issued less than a month before the start of a legislative session that promises to focus on taxes for the oil and natural gas industry.

At issue is the gross production tax energy companies pay on oil and natural gas produced in Oklahoma through horizontal drilling.

The state historically has assessed a 7 percent tax on most production, but an incentive designed to stimulate horizontal drilling cut the tax to 1 percent for the first four years of production from horizontal wells. The current tax credit is set to expire in 2015, at which time the tax rate would return to 7 percent if no action is taken.

When the tax program was initiated, horizontal drilling was relatively rare. Today, however, 155 of the 172 rigs drilling for oil and natural gas in Oklahoma are involved in horizontal drilling, according to the most recent numbers from Baker Hughes.

Industry leaders have said the tax credit should be extended because it has been successful and led to increased drilling.

Others, however, say the tax credit has served its purpose and is no longer necessary.

Oklahoma Policy Institute Director David Blatt has been one of the more outspoken critics of the lower tax rate. He praised the report for showing the importance of the oil and gas industry in Oklahoma, but he said it did not change his mind about the tax credits.

“Where the report falls short is in making the case that the current tax breaks that we have are either necessary or affordable,” he said.

Blatt pointed out that as horizontal drilling has become common, the tax credit has grown substantially.

“Every school district when it says ‘Where has our funding gone?’ can say it’s gone into the pockets of horizontal drillers,” Blatt said. “Every prison guard who hasn’t been able to get a raise can point to the same thing.”

Industry leaders, however, said the lower gross production tax rate has increased drilling, which has led to more jobs, more income tax and sales tax collections.

“If you want less of something, tax it more,” said Chad Warmington, president of the Oklahoma Oil and Gas Association, who pointed to Alaska, which increased taxes and has not seen as much oil and natural gas activity in recent years.

Mike Terry, president of the Oklahoma Independent Petroleum Association, said large companies that could drill anywhere choose their target areas based both on geology and on state tax systems.

Smaller companies, he said invest what they can in drilling. Lower tax rates lead to more money available for drilling, he said.

“Why, when things are going so well according to this study, would anyone want to mess with it?” Terry said.


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