What should oil pay?

2011-01-29T22:30:00Z What should oil pay?By CHRISTOPHER BJORKE, Bismarck Tribune Bismarck Tribune
January 29, 2011 10:30 pm  • 

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 chris.bjorke@bismarcktribune.com.)

 

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(27) Comments

  1. Marc
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    Marc - January 31, 2011 5:55 pm
    Methinks, to borrow the Tribune editor's phrase in his column on Sunday, Mr. Bjorke needs to do a bit more research when he writes an article on North Dakota crude oil. He states that North Dakota crude is trading for above (the so called U.S. current market prices of $90 per barrel.

    Please google North Dakota crude prices and a published report shows that sweet North Dakota crude (less sulpher) is trading for around $68 a barrel and sour North Dakota crude is trading for around $62 a barrel, a sharply lower price than Mr. Bjork reports. The story Mr. Bjork attempts to report on is vastly more complicated than his story leads you to believe. Methinks that Mr. Bjork needs to spend more time researching his stories, and that a knowledgeable editor should be reading and revamping his stories.
  2. best0186
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    best0186 - January 31, 2011 10:36 am
    The way that I see the issue is that the taxes that the Oil Companies are paying are most likely the ONLY restaint that the State of ND has in place for the regulating the industry.
    I mean, look at the number of well permits that the Dept. of Mineral Resources and Lynn Helms are rubber stamping with no regard to what local infrastructure and cities can handle. The people in Western ND are talking and elected officials are not getting the message.
    The burn out rate in regards to "fans of the oilfield" is growing fast. In time, if the elected officials do not start listening, they will get the message. It will probably be similar to the message that was sent to Obama in the last election.
    The State of ND needs another visionary such as Art Link. He wasn't against energy development, but believed in developing it in a sustainable manner.
  3. Daviol
    Report Abuse
    Daviol - January 31, 2011 7:14 am
    James123456789 said: "I don't understand your statement on farm commodities. That doesn't make sense. "

    Those farm commodities are all oil crops that are hauled in semis that pound the roads every bit as much as semis hauling petroleum. Many of those crops are especially prevalent in Eastern ND, home to most of the politicians who don't care about infrastructure in the oil patch.
  4. Report Abuse
    - January 31, 2011 5:32 am
    Reason said: "What an arrogant, slimy article. Even the photo is shot from the perspective of a boot licker, or worse."

    I like this. I never thought of it that way but it's very fitting!!
  5. Bill G-A-R-R
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    Bill G-A-R-R - January 30, 2011 11:46 pm
    Opinionated2 said on: January 30, 2011, 9:43 pm
    According to a Canadian that I talked to recently, Every Person in Canada got $2,800 Last Year, and $3,200 This Year from there Oil Tax!!! Where is OUR Money For Every North Dakotan?"

    Shouldn't that say...."Where is OUR Money For Every American."?
  6. James123456789
    Report Abuse
    James123456789 - January 30, 2011 9:47 pm
    Daviol said: "James123456789: You point out that Alaska has a 25% tax on oil, no personal income tax and no sales tax. Alaska's 25% oil tax is subject to a whole lot of deductions and credits, making the effective rate a lot less than 25%. You neglected to mention that Alaska does not tax the royalties received by mineral owners. Do you advocate that we adopt that part of Alaska's tax system, as well? I hope so, for the sake of consistency, if nothing else. Perhaps we should also have a 25% tax rate on sunflowers, corn, flax, soybeans, canola and other sources of oil, as well.The politics of envy is flourishing in ND better than almost anywhere else."

    I don't understand your statement on farm commodities. That doesn't make sense.
  7. James123456789
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    James123456789 - January 30, 2011 9:43 pm
    I don't think anyone would like to see the oil bust as in the early 1980s. Some things are different now as compared to back then. Today there have been advances in technology which makes the oil production more profitable. It costs less to produce a barrel of oil.

    Oil taxes do not have to be a flat rate. The tax rate should vary. If the price of oil is low, then a lower tax rate should be applied. If the price of oil is high, then a higher tax rate should be applied.
  8. Opinionated2
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    Opinionated2 - January 30, 2011 9:43 pm
    According to a Canadian that I talked to recently, Every Person in Canada got $2,800 Last Year, and $3,200 This Year from there Oil Tax!!! Where is OUR Money For Every North Dakotan?
  9. Daviol
    Report Abuse
    Daviol - January 30, 2011 6:59 pm
    scrappy1 said: "And there are always expenses that need to be covered that are related to production that are not covered by direct payments from oil companies.As an example in the 80's when the boom died, Dickinson was left with over 600 empty homes. "

    That boom didn't just die - it was killed by 1983's extraction and production taxes, which caused the producers to take their drilling rigs to other states. In just a few months, Dickinson had foreclosed homes, restaurants, hotels, apartments, and other businesses that simply closed, and Dickinson lost 6-8000 residents. Producers can leave quickly and take all of the supporting cast with them.

    I do not think our very high oil taxes will lead to less drilling in 2011 and 2012, but they may in 2013 and beyond. The major producers likely will have almost all of the Bakken leases HBP by the end of 2012. If there is no tax relief this year or in 2013, there will likely be a lot less
    infill drilling after that than we would otherwise have. If that happens, there will again be a population loss, an income loss and a huge loss of tax revenue.


  10. Milton
    Report Abuse
    Milton - January 30, 2011 3:21 pm
    DAVIOL...i think not..your masters love you, until they have had you as far as they can take you. then, they are GONE. time and time again. its there.
  11. Daviol
    Report Abuse
    Daviol - January 30, 2011 2:56 pm
    Milton: Envy seems to be one of the few senses you have.
  12. Milton
    Report Abuse
    Milton - January 30, 2011 2:26 pm
    i sense no envy here.... i sense...BLIND GREED, cash empowerment, and a feeling of imminent desertion when this is all said and done....in pieces and disarray, after your lord-masters have had their way..the worship of billionaires is baffling to me.... cry, babies, cry,... poke your fingers in your eye, then tell your mommy--"it wasn't I!"...
  13. Daviol
    Report Abuse
    Daviol - January 30, 2011 1:39 pm
    James123456789: You point out that Alaska has a 25% tax on oil, no personal income tax and no sales tax. Alaska's 25% oil tax is subject to a whole lot of deductions and credits, making the effective rate a lot less than 25%. You neglected to mention that Alaska does not tax the royalties received by mineral owners. Do you advocate that we adopt that part of Alaska's tax system, as well? I hope so, for the sake of consistency, if nothing else. Perhaps we should also have a 25% tax rate on sunflowers, corn, flax, soybeans, canola and other sources of oil, as well.

    The politics of envy is flourishing in ND better than almost anywhere else.
  14. Milton
    Report Abuse
    Milton - January 30, 2011 11:53 am
    delbert, please, don't make me cry..."TEARS FOR BILLIONAIRES"... maybe get bob geldoff to do a benefit, and a musical video? like the Band Aid thing?
  15. delbertmoore
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    delbertmoore - January 30, 2011 11:30 am
    It is fine to disagree with Schafer. It is wrong to attack him personally for having views which most of you dislike. Heidkamp and McFeeley are on four hours a day and are the only ND (barely) based opinion persons on KFYR. The oil companies deserve a fair hearing and consideration. They are not getting it. We clearly disagree on my premise that oil company taxes should be based on what they cost ND and what contributions they get from the state and not taxed on the maximum one thinks they can pay. Oil companies do pay corporate income taxes and a huge amount of sales tax. There are many adjustments to AK gross receipts tax: "The tax is based on the net value of oil and gas, which is the value at the point of production, less all qualified lease expenditures. Qualified lease expenditures include certain qualified capital and operating expenditures." I have no idea what these amount to but the 2010 Red Book published by our Tax Dept. lists the total production taxes on oil in AK as from 0 to 15%. When AK become a state the Feds owned nearly 100% of the land. AK got about 10% as part of becoming a state. Much of AK's oil production is on land where the state owns the minerals so large share of AK oil income is from royalties. Of course AK oil production is still immense compared to ND. Delbert Moore

  16. northernlights
    Report Abuse
    northernlights - January 30, 2011 10:52 am
    20 years from now when the oil is gone the oil companies will go away and not look back. Leaving ruined roads and polluted waterwells. Leaving the buffalo commons the government wants.
    So why should we give the oil away cheap? Also reichwing comment is a low blow but tipical for a low intelligent person.
  17. Milton
    Report Abuse
    Milton - January 30, 2011 10:44 am
    "I'd much rather see Schafer riding around the state working for a charitable cause."......he IS working for a charitable cause..."BEGGING FOR BILLIONAIRES".... and his own soul selling...
  18. Milton
    Report Abuse
    Milton - January 30, 2011 10:35 am
    "I would suggest the Legislature give back the money it's collected. We have plenty of revenue."

    Former Gov. Ed Schafer
    ....could not the same be said of those that are paying the taxes, so they can get EVEN MORE MONEY? hello?...ED, get back in your butt-kissing bus and go back to minnesota. and...GET A REAL FRICKIN' job! quit sucking blood.
  19. goNorthDakota
    Report Abuse
    goNorthDakota - January 30, 2011 10:31 am
    This is ridiculous. As former Governor of North Dakota I hope Schafer realizes he is doing this for the money and for the oil companies. This is not what the people of ND want! I thought Schafer was a great governor but now he is allowing himself to be paid money and be used by oil companies. Naturally, the companies want the tax to be lower to bring in more money, but this is our state and we are already having to clean up their messes.
    I'd much rather see Schafer riding around the state working for a charitable cause.
  20. Reason
    Report Abuse
    Reason - January 30, 2011 10:31 am
    What an arrogant, slimy article. Even the photo is shot from the perspective of a boot licker, or worse.
  21. James123456789
    Report Abuse
    James123456789 - January 30, 2011 9:20 am
    According to the article, former Gov. Ed Schafer is a spokesman for a group called Invest in North Dakota, formed to promote lowered oil taxes in the state. Who are the contributors to this group? What is their motive.

    Schafer says “We don’t want to get caught years from now with producers drilling another state,”. I believe the oil companies will extract oil from ND regardless of the tax rate, as long as they are making money. The price of oil is high right now, so the oil companies can afford a higher tax rate and still make lots of money. If the oil prices were to go much lower, then a lower tax rate should be considered. But higher oil prices warrant higher oil taxes.

    The state of Alaska does not have individual income tax or sales tax. However, they have a 25% oil tax. The higher tax rate in Alaska does not deter the oil companies from extracting oil because they are making lots of profit.

    Alaska does not have personal tax.
    http://www.tax.alaska.gov/programs/programs/index.aspx?10001

    25% oil tax
    http://www.tax.alaska.gov/programs/programs/index.aspx?60650

    No sales tax
    http://www.tax.alaska.gov/programs/programs/index.aspx?10002

    I think we should look at Alaska's tax system and eliminate ND's personal income tax and sales tax, and increase our oil tax to 25%. I'm glad this topic came up.
  22. Bill G-A-R-R
    Report Abuse
    Bill G-A-R-R - January 30, 2011 8:24 am
    "I find it hard to understand why KFYR thinks the people of Central and Western ND should not have a talk show host representing KFYR's listening area.)"Delbert Moore

    I have much respect for Delbert Moore's opinions, but he is just plain wrong on this. Do you know how hard it is to find an opinion out here that is different from the FOX NEWS noise machine?

    He is upset that KFYR devotes 2 hrs. a day to the left to counter the countless hrs. of Rush, Hannity, and Huckabee plus the local men in the morning?

    You read a paper daily that leans so right you'd think it would topple over.

    Sorry Delbert but you're just going to have to listen to some opposition to the Reich-wing. Not every one agrees with your point of view. Bill G-A-R-R
  23. delbertmoore
    Report Abuse
    delbertmoore - January 30, 2011 7:41 am
    Government should never take more from the people than needed for the functioning of govt. and the protection of its least fortunate citizens. ND is presently taking much more than this. Government should not take more than a "fair share" of its revenue from any one industry nor tax source. Oil production puts extraordinary costs on infrastructure and oil patch citizens generally. The oil tax distribution formulas are quite complicated but do automatically give large sums to impacted areas. The first use of oil revenue should be to compensate for the impact oil has. A second use of oil revenue, since it is an exhaustible resource, ought to be provision of money for future generations. This is also being done. The mix of oil taxes should be simplified and I think such simplification should result in a somewhat lower tax. Like Schafer I am concerned about excessive spending just because the money is there. Most important, though, the oil industry has an absolute right to have its viewpoint expressed. (The hateful comments and ridicule which KFYR radios two liberal Red River Valley talk show hosts expressed are inappropriate. I find it hard to understand why KFYR thinks the people of Central and Western ND should not have a talk show host representing KFYR's listening area.) Delbert Moore
  24. cyr1954
    Report Abuse
    cyr1954 - January 30, 2011 5:55 am
    This is nothing more than an astroturf group from out of state. The bus has a Minnesota license plate being pushed by people from Imperial Cass county who could care less about western North Dakota.

    Schafer is being paid. The lower tax rate won't go to the people; it will go to the oil companies. They have made profits even through the entire recession and now they want more and more. How much is enough?

    We must make sure that are infrastructure and schools and environment are taken care of. I don't see them flocking to other states or even threatening to run to other states. There have been no other oil finds like the Bakken Shale other than Pennsylvania.

    So let's tell Schafer, Hennen, Port and company to take their bus back to Minnesota!
  25. nowindmills
    Report Abuse
    nowindmills - January 29, 2011 11:43 pm
    Lower the tax to a competitive rate and distribute the already excessive dollars collected to the people.
    Pigs get slaughtered.
  26. Bill G-A-R-R
    Report Abuse
    Bill G-A-R-R - January 29, 2011 11:21 pm
    "I would suggest the Legislature give back the money it's collected. We have plenty of revenue."

    Former Gov. Ed Schafer

    Wow Ed, I hope it was worth it to sell us out.
  27. RSURoos
    Report Abuse
    RSURoos - January 29, 2011 11:12 pm
    By the looks of the "FixtheTax" bus former Governor Ed Schafer is riding around in it hardly looks like they really need a lower tax rate. Plus, who cares what other states' tax rates are if they don't have the oil resources that ND has. Besides, other states' also pay their teachers and state employees higher wages but that doesn't seem to matter. If the citizens of ND weren't paying above average gas prices then it might be a different story.
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