Boom Times! Energy Executives Push Permanent Tax Breaks

Image of oil gusher

It should be noted that earnings are up among some major Oklahoma energy companies just as some of their executives lobby for a proposal to ensure their companies retain a major state tax break.

On Thursday, reported that Continental Resources Inc., Devon Energy Corp and Chesapeake Energy Corp. all reported quarterly improvement in earnings. noted that the companies “continue to benefit from the country’s ongoing shale oil and natural gas boom.”

The ultra-rich executives of these companies—Harold Hamm of Continental Resources is a billionaire—are lobbying the state government to maintain a break on gross production taxes. Currently, the state taxes horizontally drilled wells at the tax-break rate of 1 percent for four years and then 7 percent afterwards. The tax break for horizontal wells is set to expire in 2015.

Hamm and his counterparts want a permanent system that would tax ALL new wells at 2 percent for four years and then 7 percent afterwards. Both Gov. Mary Fallin and Senate President Pro Tem Brian Bingman, a Sapulpa Republican, have indicated they support the proposal.

The state faces a budget shortfall and has critical funding needs in public education. Oklahoma’s per pupil spending has dropped the most of all states since 2008. The budget this year will almost have to include cuts to some agencies. It’s irresponsible to extend a tax break that is no longer needed to spur drilling activity.

The popular, local The Lost Ogle blog commented on the drilling tax-break plan with dripping, pointed sarcasm:

Obviously, these guys and their for-profit companies that have earned billions of dollars in revenue by draining Oklahoma resources know the best way they should be taxed. It’s why we let car dealers determine motor vehicle excise taxes, give bars the power to set liquor taxes, and let rich Republicans lower the top income tax rate.

The Oklahoman editorial page, which supports the permanent tax break, put it this way: “The less they [energy companies] spend on exploration in Oklahoma, the more they will spend elsewhere.” The argument defies logic. If there is money to be made by drilling for oil and gas in Oklahoma, there will be oil and gas drilling in Oklahoma. A 7 percent tax on gross production is not too steep or unfair. The tax break is simply a form of corporate welfare.

At least there’s one important voice of reason in the debate. Tulsa oilman George Kaiser says the tax break is not needed. Here’s some of what he said in his comments opposing the tax break:

In addition to the fact that I think it has desperate consequences to the state, which is already suffering an inability to fund state services, I am absolutely confident that the rate of gross production or ad valorem in a state within a reasonable range of 0 to 12 percent has no bearing whatsoever in the economic activity in a state.

Note the range of “0-12 percent.” That makes the 7 percent rate seem especially fair. Also, note the words, “I am absolutely confident . . .” Kaiser apparently doesn’t believe his argument is mere speculation or even debatable.

What’s happening here is that a small group of wealthy oil and gas executives want to set their own tax policy and they probably have the political power to do so. What they are doing might be good for their companies and their own pocketbooks, but it’s bad for a state that desperately needs additional revenues. It’s no surprise to me that they don’t care about the state’s budget problems.