Energy industry expert Mike Cantrell, a leader in the Oklahoma Independent Petroleum Association and the Energy Resources Board for years and named Oilman Of The Year in 2005, is out with a Facebook post that is certain to raise eyebrows:
For 40 years I’ve been a vocal advocate for Oklahoma’s oil and gas industry.
As the state’s largest industry I have always thought that what’s good for oil and gas is good for Oklahoma.
Today I depart from that belief.
The state of Oklahoma is in dire financial straits; in large part because the states oil and gas industry is in a depression, due to low prices.
An industry that has historically contributed up to 30% of the state’s revenue is, by some estimates, now actually taking more from our state than we are contributing.
Read comments below from Cal Hobson and Everett Moran
As a lifelong oilman and a lifelong Oklahoman that, for me, is unacceptable .
I’m not qualified to make a judgement about the efficiency of our state’s spending nor if more cuts are appropriate; but I am embarrassed by the fast growing number of our state’s finest public school teachers that have to take a 2nd or even a third job to make ends meet.
In this tumultuous time, the state’s oil and gas industry should “step up” and lead the way in surrendering all tax credits and even repealing or seriously modifying the “at risk well “provision which was intended to allow small producers to apply for a gross production tax rebate on wells that lose money over a years time. This provision has rarely cost the state more than 2 million a year in the 2 decades of its existence and has kept thousands of wells from being abandoned or even plugged. However, the estimate for 2015 is over 130 million; 83% of which is from applications for the state’s largest companies. These same companies are only paying a 2% rate on new wells ; an “incentive” that is costing the state upwards of 400 million. Taken together they are ” breaking the bank” and must either be repealed or temporarily suspended until our financial condition improves.
Our industry should lead but all tax credits should be eliminated or suspended before the state’s credit rating gets downgraded making a bad situation disastrous.
Mr Cantrell and I did not always agree on energy tax policy but we certainly do at this time. Oil and natural gas should remain in the ground until prices recover, as they always do, but in the meantime, our state does not have the same luxury when it comes to the education of our children. We generally get only one shot at that.
A crisis does exist and only those who are always critical of our public schools are oblivious to it or just as likely don’t give a rip.
However I believe the strong lobbying effort Mike helped put in place for Oklahoma’s energy interests will prevail at the capitol. Money talks and lawmakers respond.
But to our school kids obviously not so much.
Sincerely,
Cal Hobson
Boy, oh boy…. that’s a tough one, Mike. As you know, I was against making the GPT reduction permanent, but a comment I left in response on OIPA’s site was taken down because the OIPA has a “long-standing policy to not allow comments on our web site that are detrimental to OIPA positions set by the board of directors.” Such a policy is ludicrous and regressive in my opinion. Now, it looks as if that shortsighted policy, benefitting only the largest operators [and often the most reckless] has come home to roost.
The Oklahoma State budget is in dire straits, not only due to the downturn in our industry, but also due to reckless tax policies. I still remember Governor Fallin’s vow to lower the corporate tax rate by 1/4 of 1%, proclaiming that it would attract new industry. Really? 1/4 of 1%? Would you relocate to another state for a 1/4 of 1% reduction in taxes? I doubt it, especially if it meant moving to a state that placed such a low priority on education. What that 1/4 of 1% reduction does deliver, however, is an additional $100M hit to the annual budget. I point to poor legislative decisions on tax policy because I question whether our industry should bear sole responsibility for righting the ship.
The conundrum we face now was predictable. It is difficult, if not impossible with the current legislature, to sell a tax increase [or elimination of deductions or credits] on oil & gas when, at best, producers struggle to make a profit and, at worst, are forced to layoff thousands or even shut their doors. I must concede that our industry does indeed bear a measure of responsibility, as many of our colleagues, as well as OIPA, lobbied heavily for the permanent reduction in the GPT. We must be careful, however, not to jeopardize an industry that has been [and will be again] the major driver of the state’s economy.
Mike, you exemplify the selfless attitude that every oil & gas executive should embrace. We are Americans first, Oklahomans second, and oil & gas producers third. As responsible leaders and businesspeople, we should be part of the solution, but not the entire solution. History has shown us that these downturns are cyclical. There is good reason to believe that oil prices will recover. Complete elimination of the “at risk well” provision risks the permanent loss of perhaps thousands of wells to plugging and abandonment. While doing so might ease the shortfall in the immediate term, it might well cost the state much more in tax revenue a very few years down the road. Perhaps there is a middle road (absent of yellow stripes and armadillos):
If the goal of the “at risk well” provision is to prevent the premature, permanent abandonment of wells that might be profitable at higher prices, then it need not make otherwise loser wells profitable. It needs only to reduce or eliminate loss. I took a look at the GPT refunds we applied for from 2006 through 2013. While most wells lost more money than the amount of their GPT, there were some that were eligible simply because the GPT for the year exceeded the profit for the same period – sometimes by a large margin. Why not simply modify the provision so that the rebate is not allowed to exceed the loss for the year. In our particular case, that simple provision would have decreased the rebate by 31%.
It might be a good idea to poll producers who have a known history of honesty and fair dealings as to how much the “at risk well” provision truly impacts operations. While any rebates received represent a financial shot in the arm at a time most of our operations either lose money or barely make a profit, [again in our particular case] in most cases the eligible rebate ranges from as little as 1% to perhaps 30% of the loss incurred. If our experience mirrors that of most producers, the “at risk well” provision, while providing the aforementioned shot in the arm, might not have a significant impact on field operations. This is particularly true for the thousands of wells that only make a few barrels of oil per day. Low prices and high operating costs make these wells unprofitable, but those same low prices, combined with low volume, mean that the GPT collected will be much lower than the operating losses. If this is true statewide, then you are probably on to something.
Mike, it is personally reassuring to know that there are still fierce advocates for our industry like you who, nonetheless, keep our industry’s impacts on society, both positive and negative, in proper perspective.
Just a note from a former oil field employee..In the 80’s, we had about the only positive news on the economy along with Texas and Louisiana. Times were good and we spent like they were. However, about that time we started the Rainy Day Fund to bridge poor collections from the energy sector. What I want to know is; how is the collection based,a percentage per barrel or or a percentage of the overall gross production of product. My suggestion is to base the States take on a percentage per barrel sidestepping the roller coaster effect of the world crude price. Then we could have a more stabilized base to build a budget with.. Just a thought..