North Dakota’s oil industry produces big numbers.
It produces around 350,000 barrels per day, with a current market price above $90 per barrel. The state’s share of that, generated by its two oil taxes, is estimated to add up to $1.4 billion over this biennium. That amount is divied up among towns, counties, school districts, designated funds and the state’s general fund. The balance of the Permanent Oil Tax Trust Fund is $630 million.
Another number is 11.5 percent, and some people think it is too high.
“The reality is that the oil industry is paying an unbelievable amount of tax,” said Ron Ness, head of the North Dakota Petroleum Council, an industry group.
North Dakota collects a 5 percent production tax and a 6.5 percent extraction tax on the majority of the oil that is produced here, making for an effective rate of 11.5 percent. Various incentives lower that rate for some types of less productive wells and in times of low oil prices.
One billion dollars is a lot of money, and it goes a long way toward paying for North Dakota’s wants and needs, some of which are the result of the stress on infrastructure in the oil-producing counties. The Petroleum Council is among the voices saying the amount the state gets should be lower, and in recent weeks that message has been repeated by Harold Hamm, chairman of Continental Resources, the third-largest oil producer in the state; and former Gov. Ed Schafer, who is a spokesman for a group called Invest in North Dakota, formed to promote lowered oil taxes in the state.
Now Schafer is taking the message on the road and promoting it at town hall-style meetings around the state. The first stop on the schedule was Williston. He acknowledged that it is not the easiest sales pitch.
“I think the initial reaction is that it’s not popular,” Schafer said. “‘Why would we want to change that?’ That’s what everybody says.”
However, Schafer argued that the lower tax is important to sustain the oil boom after the high-production wells become fewer years from now. Lower taxes in Montana, South Dakota and other states with oil could lead companies to drill elsewhere, he said.
“We don’t want to get caught years from now with producers drilling another state,” Schafer said.
Schafer also argued that the state could become too dependent on oil taxes for its budget and that state leaders are making commitments that they may not be able to pay for later.
“We’re expanding the size of government, and it’s all based on oil revenues,” he said. “We have the money. We have way more revenue than what we need.”
Schafer’s group is not giving a specific number at which say taxes should be set. The Petroleum Council, which is not working with Invest in North Dakota, according to Ness, has called for the effective rate to be lowered to 9.25 percent for new wells and the incentives that cause the rate to vary depending on the type of well or the price of oil to be ended.
The incentives are meant to encourage drilling on marginal wells and when the price is low, but they make revenues unpredictable for companies and for the state.
“We have been advocating for quite some time that the tax structure is broken and needs to be fixed,” Ness said. “What the industry wants is predictability.”
The council’s tax change would support more production, Ness said, and the increased volume would raise more tax revenue.
Two state representatives have introduced a bill close to what the council wants. House Bill 1420, sponsored by Shirley Meyer, D-Dickinson, and Kenton Onstad,
D-Parshall, proposes that incentives be eliminated and the tax on new wells be set at 9.5 percent.
The fiscal impact of the bill has not been released yet, but Onstad said his goal was to keep the state’s tax revenue at roughly the same level while making the rate more predictable.
He thinks the fiscal impact will be an approximate $70 million reduction in tax revenue for the biennium since incentives make the tax rate closer to 10 percent.
“It puts production companies all on an even keel,” he said. “It’s good for royalty owners and mineral owners.”
Onstad does not agree with Schafer’s call for lower taxes without regard to the state’s overall revenue.
“The citizens of North Dakota see this as a one-time revenue,” he said. “Once you lower it, it’s really hard to bring back up.”
It is Williston Mayor Ward Koeser’s job to help his town deal with the stresses caused by oil development, and he said it would be hypocritical to support lower taxes while asking for the state’s help for infrastructure maintenance and improvements. And he does not see production declining.
“It’s hard for me to believe that high taxes are limiting activity right now,” he said. “I just know in general that people in Williston feel it is fair and adequate.”
Schafer visited Williston on Thursday in a bus decorated with the logos of Invest in North Dakota for a town hall meeting. The Williston tea party assisted with the event. Vern Brossart, a member of the group, said it is divided between those who might support a lower oil tax and those who worry that it would hurt their goal of eliminating property tax. He said he had not made up his mind.
“Being that we have higher oil taxes than anywhere in the lower 48, that gives us pause,” he said.
Scott Hennen, a radio host who is coordinating the campaign, said the turnout at the meeting — organizers said it was around 200 — showed strong support for lowering the tax.
Rep. Patrick Hatlestad,
R-Williston, said he would consider a lower rate in the future, but not while the impact of development must be paid for and development is frantic.
“Right now it’s kind of a frenzy. Everyone’s working their tails off to drill holes in the ground,” he said. “I don’t see the lowering of the tax right now as a viable option.”
The support for Schafer’s campaign is unclear. He said that he was asked to be its spokesman by Mark Pfeifle, a Wishek native and a former adviser to President George W. Bush, who now works as a communications consultant in Washington, D.C. Invest in North Dakota is a 501(c)4 nonprofit organization and is not required to disclose its funding sources. Its website is www.fixthetax.com.
Pfeifle said he made only a minor contribution by assisting Hennen with communications.
Schafer said he would be paid, but he was not sure how much. He said the organization hopes to get money from oil companies but could not say if or how much they have contributed.
Schafer estimated that the project could cost $300,000 and that Invest in North Dakota had pledges for donations from an oil company, a health care company and an agriculture company. Organizers are also asking for contributions at events and on their website.
“I don’t think we’ve got any checks through the door,” he said. “I would hope the oil companies would support it.”
Senate Minority Leader Ryan Taylor, D-Towner, said Schafer’s group was pushing an unpopular idea while the impact of oil development is damaging infrastructure such as roads.
“I’m kind of incredulous at the gall of trying to pass this off as a grassroots effort,” he said. “When that bus gets out to western North Dakota, it’s going to need some good suspension.”
Schafer said he accepts that lower taxes on oil companies will be tough for many people to support.
“That’s what makes it fun,” he said. “I don’t like the easy ones.”
(Reach reporter Christopher Bjorke at 250-8261 or email@example.com.)