Tax incentives aimed at increasing Oklahoma oil and gas activity may have outlived their short-lived usefulness, the state's chief financial officer said Wednesday.
Several energy industry incentives cost Oklahoma a total of $321 million in lost revenue in fiscal 2013, Finance Secretary Preston Doerflinger.
The tax breaks authorized by the Legislature three years ago to support horizontal drilling should be reviewed by the 2014 Legislature before being extended, he said.
"The boom in the energy industry is improving Oklahoma's economy in so many ways, but the general revenue fund isn't seeing the benefits it would have before 2010," Doerflinger said.
Gov. Mary Fallin wants energy industry executives and lawmakers to find a solution, he said.
"Policymakers should consider revisiting this law in consultation with the energy industry to determine whether it is fair and equitable to the industry, the state, and all its taxpayers," Doerflinger said.
Doerflinger said he isn't called for an end to the incentives, but a review of their effectiveness.
"I think everybody recognizes that something has to give," he said.
Rebates and other incentives may have been necessary in 2010 when horizontal drilling was an innovative technique, Doerflinger said, but it is now a well-developed industry standard.
"Any fiscally responsible policymaker needs to seriously consider at what level government should incentivize something that is now standard practice," he said.
The latest Baker-Hughes rotary rig count showed that of the 174 rigs working in Oklahoma, 161 were involved in horizontal drilling.
"It's not responsible for government to give money away as an incentive if no incentive is needed," Doerflinger said.
The total loss of $321 million in fiscal 2013 included $173 million of drilling rebates and refunds and $148 million of state tax credits for horizontal wells, the Oklahoma Tax Commission said.
The rebates include $72.5 million linked to horizontal oil wells and $30.1 million for horizontal natural gas wells. The credits include $79 million for oil wells and $69 million for gas.
The 2010 Legislature cut the production tax on horizontally drilled wells to 1% from 7% for four years after production began. A provision in an earlier rebate law that ended the tax reduction when drilling expenses had been recouped was eliminated.
Revenue from the remaining 1% tax goes to local governments rather than the state general fund, Doerflinger said.
Mike Terry, president of the Oklahoma Independent Producers Association, said the tax breaks targeted by Doerflinger should be seen as investments in the state's economy.
"Increased drilling results in increased production, benefitting state tax coffers, hundreds of thousands of Oklahoma royalty owners, and the workers needed to complete and maintain those wells," Terry said.
A legislative task force reviewed the tax incentives before the 2012 Legislature convened and determined they were productive, he said.
The oil and gas industry generates 27% of Oklahoma's state tax revenues, he said, including production severance taxes as well as sales and income taxes. The total does not include corporate taxes, motor vehicles taxes, or local property taxes, Terry said.