Rally for the Rigs
Oil industry unites against tax increase
Oil and natural gas company employees, executives and trade associations rallied at the Capitol on Tuesday in support of the state’s largest industry.
“We came out to have our voices heard,” White Star Petroleum employee Jackie Shaver said in an interview before meeting with legislators.
“With as many people who have been laid off in the industry in the past couple of years, you’d think the Legislature would be concerned about hurting the industry and the effect that could have on housing and the economy.”
Scheduled several months in advance, Tuesday’s rally had added meaning as it was sandwiched between votes to raise the initial oil and natural gas gross production tax rate to 5 percent, up from 2 percent currently. The House approved the plan late Monday, and the Senate is scheduled to consider the measure Wednesday.
“We will not back down from our very clear position that any increase in taxes on new wells in Oklahoma will result in less wells being drilled. That principle is ironclad,” said Wade Hutchings, chairman of the Oklahoma Oil and gas Association and senior vice president of exploration at Devon Energy Corp.
From 4 to 5 percent
Tuesday’s rally was led by the Oklahoma Oil and Gas Association and the Oklahoma Independent Petroleum Association. Both groups supported an initial gross production tax increase to 4 percent as part of the Step Up Oklahoma proposal, but both objected to the 5 percent increase approved Monday by the House.
“We were willing to go to 4 percent even though we knew it would cost jobs and revenue to the state. That plan included so many other reforms and so many other revenue streams that we were
willing to support it as a sacrifice for the state,” said Barry Mullennix, OIPA chairman and CEO of Tulsa-based Panther Energy.
“Last night, we felt like they threw us under the bus. They threw out wind and other industries from the revenue package and went up to 5 percent on our gross production package.”
A gross production tax increase would be especially difficult for smaller companies, White Star Petroleum engineer Adam Jekel said.
“Good areas like Kingfisher County are going to be fine, but it’s the marginal areas where smaller companies can afford to buy that’s going to be most affected,” he said. “We’re already operating on small margins. A tax increase will make some of those wells uneconomical.”
Proponents of the higher gross production tax, however, say the tax is just one of many variable companies consider when determining where and how much to drill and that drilling will continue in Oklahoma at a growing pace regardless of the tax.
Oil and natural gas production is taxed at 2 percent for the first three years of production, at which point the tax rate increases to 7 percent.
Teacher pay raises
Legislators have looked to the gross production tax and other tax increases in several attempts over the past two years to increase the state’s revenue and fund teacher pay raises.
HB 1010 on Monday passed the House by a vote of 79-19. The bill also would add a $1 tax on cigarettes, a 10 percent tax on smokeless tobacco, a 3-cent-per-gallon tax on gasoline, a 6-cent-pergallon tax on diesel and a $5-per-night hotel tax. The money would pay for an average raise of more than $6,000 for Oklahoma teachers.
While opposing HB 1010 and the 5 percent gross production tax rate, Hutchings said the oil industry wants to see teachers receive a pay raise.
“We very much are supportive of having an effective and well-funded education system,” he said. “We would love to be able to see our teachers get a raise. We want them to be rewarded for the work they do on behalf of our kids and our state.”