Reducing Oklahoma oil and gas tax breaks could be a key to a balanced state budget

Jan 30, 2014

Tax breaks for certain kinds of oil and gas production will cost Oklahoma millions this year.
Tax breaks for certain kinds of oil and gas production will cost Oklahoma millions this year.
Credit OU

Energy production tax breaks will cost Oklahoma $307 million in 2014, and $304 million in 2015.  This year state leaders expect $170 million budget shortfall.  In other words, the expected budget shortfall is about half what the state gives away in tax breaks to oil and gas companies reported Matt Trotter for Public Radio Tulsa.  

That’s not how other states do it.

"In North Dakota they're a little over 11 percent, and Texas is about 7 percent, and they're still drilling like crazy there," said Rep. Scott Inman.

The House minority leader wants to rein in Oklahoma's incentives.

"At the time, horizontal drilling was a new concept, and we wanted to create an incentive to encourage the industry to use that," Inman said. "Well, now, it's gone from an experimental concept to that's the way they do business."

Oklahoma Finance Secretary Preston Doerflinger says even if that’s the way business is done these days, changing the tax breaks isn’t a popular idea.

"When I first came out and suggested that they should be re-examined, I believe that was in July, and for three days I was in an undisclosed location in Poteau while I let that hang out there for a little while," Doerflinger said, prompting laughter from the budget summit attendees.

While some progress has been made since then, Doerflinger said key leaders have already made up their minds.

"There's no question that the governor has a position, and we have worked with the House and Senate up until recently — still working with the Senate — and the House has obviously staked out a different position," Doerflinger said. "And when I say, 'the House,' [I mean] the Republican leader."

House Speaker TW Shannon has filed a bill to make the current incentive for new horizontally drilled wells permanent. Inman is fairly confident it won't pass.

"While the speaker may introduce legislation to keep it at 1 percent, I don't think the governor would sign it, I don't think Sen. Bingman would allow it out of the Senate," Inman said. "My team certainly won't be supportive of that, and hopefully we'll get a good compromise come out of the Senate and sent our way."

Another House Bill would give companies until 2016 to drill wells taxed at 1 percent. A Senate Bill from Oklahoma City Republican Cliff Branan would institute a permanent 4.95 percent rate for wells started in 2016 and after.