Research of Tax for Drilling in Oklahoma

Few years’ huge oil production of Oklahoma has led people to question the government in collecting hundreds of millions of dollars in tax to a growing industry.

As the Oil and gas field’s of Oklahoma boosting up, the tax revenue also follow the growth. The state government is seems to have no attention on the gas and oil field but oil policy institute of Oklahoma has been critical of such state tax collections, like those for horizontal drilling, an oil and gas extraction technique that was once experimental and has evolved to become an industry standard.

Drilling in Oklahoma supports the tax breaks, which they feel as an investment in one of the state’s largest economic drivers.  

A study of left-leaning think-tank shows that if the state eliminated the incentives, its oil and gas taxes would still be modest compared to five of its oil-umbilical peer states of USA.

The state of Oklahoma got a 7 percent gross production tax on oil and gas drilling, But many Oil and gas driller in Oklahoma who drill horizontal well only pay 1 percent for nearly 4 years of production thanks to a tax incentive. 

States policy tapped Headwaters Economics to study how Oklahoma’s effective tax rates and conjunction with Oklahoma Policy Institute, the Headwaters find that Oklahoma’s taxes on unconventional production of oil and gas, or horizontal drilling, are among the nation’s lowest and would remain relatively low even if the state eliminated the tax breaks currently benefiting horizontal drilling.

The research compares the effective tax rate of unconventional oil and gas wells in 7 states over a decade. The study revealed:

Oklahoma State’s effective tax rate on unconventional oil production is 3.3 percent, the lowest of 7 peer oil generating states,

Efficient tax rate on informal gas drilling in Oklahoma is 2.6 percent, which is fifth lowest of 7 peer natural gas generating states.

If Oklahoma removed its tax break benefiting on unconventional way of production, its tax rate on oil would rank sixth among 7 producing states and third among seven gas producing states.

 The state of Oklahoma’s current tax production from horizontal wells is only 1 percent .compared to 7 percent for conventional drilling. This tax incentive has an large impact because modern wells have very steep decline curves compared to conventional production. For a typical oil well, nearly 64 percent of cumulative production over the first ten years will come in the first 48 months after a well is completed, the researchers believe. The dropping curve for natural gas is even steeper.

According to the data from a typical unconventional oil well, the research shows that cumulative gross production tax over a decade will be $630,000, which is less than 38 percent of the states collection of $1.4 million without the tax incentive. With the tax revenue, the tax rate on oil drilling in Oklahoma is the lowest in America; for natural gas, this state is third lowest.

If the tax breaks were eliminated or the current tax break was allowed to expire in 2016, as slated, Oklahoma slips to having the fourth-lowest tax rate for oil and gas.