By Daniel Gilbert
Oklahoma Gov. Mary Fallin signed legislation on Wednesday that
will raise taxes on much of the state's new oil and gas wells, but
the higher rate still falls short of what some executives wanted to
help fund education and infrastructure improvements.
The new law takes effect in 2015 and will tax energy companies
at a 2% rate on a well's oil and gas output for the first three
years of its life. After that, the tax rate will rise to 7%. The
new, permanent tax rate will cover all wells in the state. It
replaces an expiring incentive for deep, costly wells that taxed
production at a 1% rate for the first four years.
Some Oklahoma energy executives, most prominently billionaire
George Kaiser, argued the state needed additional funds, and a 7%
tax on oil and gas production wouldn't significantly slow down
drilling. A spokesman for Mr. Kaiser said he had no comment.
The state's largest oil and gas producers, Devon Energy Corp.,
Continental Resources Inc. and Chesapeake Energy Corp., proposed a
permanent 2% tax rate similar to what the legislature passed and
the governor signed Wednesday.
Gov. Fallin said raising the tax rate to 7% would have
eliminated Oklahoma jobs and driven investment out of state. The
new rate "sends a clear message to energy producers worldwide:
Oklahoma is the place for energy production and investment," she
said.
Mike Terry, president of the Oklahoma Independent Petroleum
Association, said the new tax structure will encourage drilling in
hard-to-reach places. "The easy-to-find, inexpensive-to-produce oil
and natural gas is long gone," he said.
The new law still has its critics. "Instead of investing in
Oklahoma while the energy boom lasts, this bad deal ensures that
the state will continue to fall short of making the investments we
need in a quality education system and other critical public
services," said David Blatt, executive director of the Oklahoma
Policy Institute, a think tank that favored a higher tax on
production.
Write to Daniel Gilbert at daniel.gilbert@wsj.com