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Tue April 8, 2014
OK Policy Poll: Voters Oppose Tax Incentives for Horizontal Drilling
A new poll shows 64 percent of Oklahoma voters oppose state tax incentives for horizontal drilling and support eliminating the incentive to pay for other government services.
Oklahoma levies a 7 percent tax on oil and gas production, but the horizontal drilling incentive lowers the rate to 1 percent for the first 48 months of production. The incentive expires in 2015, and some Oklahoma lawmakers are pushing to make the reduced rate permanent.
The poll, commissioned by the the Oklahoma Policy Institute, a left-leaning think-tank that has argued for eliminating the tax incentive and against cutting severance taxes on oil and gas production, showed 64 percent support eliminating the tax incentive to provide more funding for education, public safety, highways and “other state needs.”
Only 7 percent of those surveyed supported eliminating the incentives to help offset a cut to the top income tax rate, OK Policy’s survey data show.
Twenty-eight percent of those surveyed said they support the horizontal drilling tax incentive, and 21 percent said Oklahoma should keep the incentive.
Majority support for ending the tax incentive crossed party lines, but independents and Democrats showed more support than Republicans, OK Policy’s survey data show.
Here’s the political breakdown:
Democrats (73 percent), independents (75 percent), and Republicans (51 percent) all opposed to the tax break.
The incentive was created in the ’90s, when horizontal drilling was an experimental technique. Now, most new wells are drilled horizontally, and the cost of the incentive has grown with Oklahoma’s oil boom. The incentive cost about $150 million last year, state financial data show, and some estimate it could cost hundreds of millions this year.
Many oil and gas companies and the industry’s two major organizations, the Oklahoma Independent Petroleum Association and the Mid-continent Oil and Gas Association, support the drilling incentive, as does the State Chamber of Oklahoma.
But executives at some energy companies say the incentive doesn’t lead to new drilling, and generally oppose reducing taxes on oil and gas production. In March, Kaiser-Francis Oil’s Chief Financial Officer Don Millican told StateImpact that while tax cuts benefit oil and gas companies, they don’t really lead to new drilling or make the state more competitive for new drilling.
“Severance tax rates never make a difference in that decision. They just don’t,” Millican says. “People are drilling where the hydrocarbons are. Where the hydrocarbons are, in sufficient quantities, it makes sense to drill.”