David and Goliath
Smaller oil and gas producers rallied at the Capitol to advocate for higher gross production taxes and the protection of vertical wells in pending legislation.
Wearing green “7 percent” and red “50 percent” stickers, about 50 smaller oil and gas producers rallied at the Capitol on Wednesday to advocate for higher gross production taxes and the protection of vertical wells in pending legislation.
The Oklahoma Energy Producers Alliance wants to tie together the tax issue and the protection of vertical wells as two larger Oklahoma energy associations work out their differences on long-lateral bills, Senate Bill 284 and SB 669.
State law currently allows horizontal drilling longer than a mile only in shale formations. The long-lateral bills would expand that to non-shale formations.
The Oklahoma Energy Producers Alliance said it viewed the long-lateral issue as a “David vs. Goliath” fight with larger, horizontal drillers. Most of the alliance’s members operate older vertical wells that are taxed at the full 7 percent rate. Since July 2015, all new wells are taxed at 2 percent for three years before the rate rises to 7 percent.
The group wants any long-lateral bill to include protections for vertical producers. It is proposing any plan to drill horizontally through existing vertical units should get approval from 50 percent of the affected vertical owners.
“It’s not that we’re against technology. We just want fairness,” said Mike Cantrell, one of the organizers and an oilman from Ada. “All of us have been here for decades. We’ve paid 7 percent gross production tax since 1973.
“We think we ought to end all special deals. We’re a conservative group; we’re not a tax-and-spend group at all. We just don’t think there ought to be any special deals at all.”
Several lawmakers spoke to the alliance and pledged their support, including Rep. Pat Ownbey, R-Ardmore. They said the rights of smaller vertical producers should be protected.
“I’m all for the big producers, but we still have to do what’s right,” Ownbey said. “If others run over your property, you should have a way to get that back.”
Lee Levinson, a Tulsa attorney, oilman and cochair of the alliance, urged the vertical producers to document how their wells have been negatively affected by nearby horizontal drilling and hydraulic fracturing. He said the Corporation Commission should hear from those operators.
David Guest, a thirdgeneration oil and gas producer and royalty owner from Edmond, said he’s had three wells affected by hydraulic fracturing from horizontal wells in Pawnee County.
“I could take them to district court, but with the amount I would spend on legal fees, by the time we’re finished the company might have to file for bankruptcy. It would be like throwing good money after bad,” Guest said in an interview after the rally. “The Corporation Commission is not protecting my rights when they’re allowing a horizontal well to frack into me, and they’re not preventing waste if they’re allowing my well to be damaged.”
Some of the members of the Oklahoma Energy Producers Alliance previously were members of the Oklahoma Independent Petroleum Association. Cantrell said they tried to work within that association on the long-lateral issue for the past couple of years.
Cantrell and former Tulsa Mayor Dewey Barlett Jr., who also spoke at the rally, are former chairmen of OIPA.
Tim Wigley, OIPA’s executive vice president of governmental affairs, said his association has been working on the long-lateral issue and recently came to a consensus.
“I know this has been very controversial in our organization for a number of years,” Wigley said. “But our board voted 42-20 recently to support long-lateral legislation, and 96 or 97 percent of the wells that are drilled are lateral.”
Wigley said the state needs stable tax policies to continue to attract drilling investment.
“Companies look at a variety of things before they invest anywhere,” Wigley said. “Competition for internal capital is intense for many of these companies. They look at political environment, tax environment and regulatory environment, among other things. Why would we want to upset that and possibly cause someone to rethink their investment and go elsewhere?”
Wigley said recent studies show the energy industry pays about onefourth of all the taxes in the state when income taxes, gross production taxes and other industry taxes are taken into account.
The Oklahoma Oil and Gas Association said the spillover effect from more drilling rigs — including service companies and local businesses — is a prime job creator.
“Drilling is the job creator,” said Chad Warmington, the association’s president. “That’s what OKOGA’s member companies are doing, and it’s the driving force behind our policy agenda at the Capitol — job creation in Oklahoma. Not job creation in Texas, North Dakota or New Mexico, where these companies are also drilling. OKOGA’s policy priorities encourage these energy jobs to be created here, in our state of Oklahoma. This is what will grow our state’s economy.”