Interview: Senator Dwight Cook Introduces Major Oil Tax Reforms

Today Senator Dwight Cook introduced SB2336 (not available online yet) proposing several major changes to North Dakota’s oil taxes. He took a few minutes to talk with me about the changes after a press conference with House Majority Leader Al Carlson and Senate Majority Leader Rich Wardner announcing them.

Here are the specifics of the “complicated bill” (as Cook described it):

* The bill would require the oil companies withhold income taxes from royalty payments to out-of-state mineral rights holders. Cook says this will raise about $4.1 million in additional revenue for the state.

* Eliminates stripper well exemptions in the Bakken and Three Forks formation, representing about an $83 million tax increase to the oil industry. “They aren’t necessarily fond of that,” Cook told me.

* Raises the threshold for “stripper well status” for wells deeper than 10,000 feet from 30 barrels per day to 45 barrels per day

* Creates an incentive to explore for oil outside the Three Forks and Bakken formations. Cook mentioned that only 2 of the 182 rigs currently operating in North Dakota were outside those formatinos. This incentive reduces the extraction tax from 6.5% to 2.5% for wells outside these formations for the first 18 months of production or the first 75,000 barrels of oil. “This incentive hopefully will spread this activity across the state…so that we’re not completely dependent on Bakken and Three Forks wells.” Cook said this will lose the state about $35 million in revenues.

All of these policies would go into effect for the next biennium, and would amount to about a $23 million tax increase on the oil industry according to Cook.

The bill does one additional thing:

On January 1st 2017 the extraction tax will drop from 6.5% to 4.5% and will eliminate 10 production incentives which trigger based on oil prices. This is the “fix the tax” proposal that former Governor Ed Schafer made a public campaign for during the last legislative session. It would end the incentives, which would actually raise taxes on the oil industry, in exchange for a lower and consistent overall oil extraction tax rate.

Because the oil industry gets taxed less if oil prices fall, Cook noted that the incentives “could cost the state as much as $2 billion.” Ending the exemptions would prevent that from happening.