Oklahoma: Does a booming oil industry need tax incentives?

Aug 22, 2013

Credit State Impact Oklahoma

As the oilfields boom in Oklahoma, so are the state tax credits for drilling reported State Impact Oklahoma.  

In the 1980s, the oil bust pushed lawmakers to implement tax refunds and incentives for experimental drilling.  Today, those policies are still in effect, but things have changed.  Horizontal drilling and fracking has become an industry standard, yet these practices are still eligible for a 1 percent state levy instead of a 7 percent traditional vertical drillers face.

Triad Energy’s co-owner, Mike McDonald, says there’s a simple reason for this.  “It’s five to six times as expensive,” McDonald says. “We could drill a vertical well, and put it into production for in the neighborhood of probably $500,000. Maybe $550,000 — it just depends. Horizontal wells, if everything goes right — $2.7 million to $3 million dollars.”

David Blatt of the left-leaning Oklahoma Policy Institute offers a differing opinion.  He says, “As more and more drilling has shifted to horizontal production, the cost of these credits is simply skyrocketing.  A tax subsidy that might have been tenable when it was costing the state $20 million a year becomes a lot less tenable when it it’s costing the state $150 million a year.” 

The state’s Secretary of Finance and Revenue, Preston Doerflinger, asked legislators to re-examine the incentives, which expire in 2015.  He wrote, “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,” in the July update on the state’s economy.