State tax breaks for oil and gas companies are now permanent.
A law eliminating sunset clauses and setting a 2 percent tax rate for three years for most new wells went into effect for the start of the new fiscal year.
David Blatt with Oklahoma Policy Institute said there’s a problem with that.
"More and more production has shifted to horizontal drilling, which has a rather steep and rapid decline curve," Blatt said. "After 36 months, most of the production has already been depleted."
Horizontal wells now account for more than 60 percent of new wells nationwide.
The 2 percent rate is an increase for horizontal wells, which were previously taxed at one percent for 48 months. According to Oklahoma Tax Commission data, the amount of tax breaks for horizontal drilling grew from $2 million in 2004 to a projected $379 million this year.
Blatt said current oil prices don’t rule out temporary incentives.
"But even when the prices recover and things are going well again, we have locked into place a permanent tax break, which is going to cost the state hundreds of millions of dollars a year," Blatt said.
The state tax commission estimates the entire cost of the changes will be $308 million for fiscal year 2016. After three years, the tax rate goes up to 7 percent.
