A Texan’s thank you to Oklahoma
I thought passing a tax increase was an interesting move, considering how that industry is truly the backbone of your economy. I thank you because it will drive business and capital dollars away from your state down to us in Texas.
Oklahoma,
I want to start by saying sorry. I should have said “thank you” sooner, but as you can imagine, we are pretty busy down here in Texas. I wanted to thank you for passing one of the largest tax increases in your state’s history, which will land almost entirely on the back of the oil and gas industry.
As an energy consultant here in Texas, I have the opportunity to work with what I believe are some of the most creative and brilliant people in the world. I mostly focus on energy in Texas, but of course oil and gas companies have operations in most of the energy-producing states.
With that, I am exposed to a variety of policy debates and decisions.
It’s an interesting perspective most do not see. I understand how these policy decisions impact the way capital investment is allocated and reallocated on a weekly and even daily basis. It is a fascinating and dynamic business, focusing on the efficient use of capital for the largest return on investment, as is the same for just about every business.
I know it may seem odd for someone from Texas to thank the Oklahoma Legislature, but let me explain. I thought passing a tax increase was an interesting move, considering how that industry is truly the backbone of your economy. I thank you because it will drive business and capital dollars away from your state down to us in Texas. I can’t think of a better marketing campaign for my own business. As the saying goes, Texas is wide open for business.
Now that the dust has settled on Oklahoma’s legislative sessions over the past two years, we can take stock: The Legislature passed five laws that directly raised taxes on the oil and gas industry in Oklahoma by more than $600 million. It also raised the gross production tax on old and new wells to 5 percent for the first 36 months of production and 7 percent from there on out. This brings Oklahoma’s effective gross production tax to more than 6 percent on oil and gas, while Texas is at 4.6 percent on oil. This has all but eliminated the economic advantage once held over Texas.
With the shale revolution, plenty of other states have access to these same natural resources. Just because you have oil in the ground doesn’t necessarily mean a company has to drill the well. Businesses can move the capital investment from state to state. A company with assets in Oklahoma and in Texas will look at this new tax bracket and undoubtedly conclude that it can get a better return on investment in Texas. That may mean a company will drill one less well in your state, and one more in Texas.
All of the new tax increases mean companies are going to be looking for acreage where the cost of business is predictable and reasonable. Here in Texas, it is. So I want to thank you and then welcome the capital investment and new businesses to Texas. I know our wins in the Red River Shootout have been few and far between in recent years, but when it comes to the energy business, Texas just took home the title.
Hosek lives in Austin, Texas.