Oklahoma Governor Signs Bill Raising Energy-Output Tax (Wall Street Journal)

By Daniel Gilbert

Oklahoma Gov. Mary Fallin signed legislation on Wednesday that will raise taxes on much of the state’s new oil and gas wells, but the higher rate still falls short of what some executives wanted to help fund education and infrastructure improvements.

The new law takes effect in 2015 and will tax energy companies at a 2% rate on a well’s oil and gas output for the first three years of its life. After that, the tax rate will rise to 7%. The new, permanent tax rate will cover all wells in the state. It replaces an expiring incentive for deep, costly wells that taxed production at a 1% rate for the first four years.

Some Oklahoma energy executives, most prominently billionaire George Kaiser, argued the state needed additional funds, and a 7% tax on oil and gas production wouldn’t significantly slow down drilling. A spokesman for Mr. Kaiser said he had no comment.

The state’s largest oil and gas producers, Devon Energy Corp., Continental Resources Inc. and Chesapeake Energy Corp., proposed a permanent 2% tax rate similar to what the legislature passed and the governor signed Wednesday.

Gov. Fallin said raising the tax rate to 7% would have eliminated Oklahoma jobs and driven investment out of state. The new rate “sends a clear message to energy producers worldwide: Oklahoma is the place for energy production and investment,” she said.

Mike Terry, president of the Oklahoma Independent Petroleum Association, said the new tax structure will encourage drilling in hard-to-reach places. “The easy-to-find, inexpensive-to-produce oil and natural gas is long gone,” he said.

The new law still has its critics. “Instead of investing in Oklahoma while the energy boom lasts, this bad deal ensures that the state will continue to fall short of making the investments we need in a quality education system and other critical public services,” said David Blatt, executive director of the Oklahoma Policy Institute, a think tank that favored a higher tax on production.



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