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Mazzei Legislation Would Kill Tax Exemptions For Marginal Wells

A pump jack at an oil-field site near Luther.
Brent Fuchs
The Journal Record
A pump jack at an oil-field site near Luther.

When state lawmakers return in February, they’ll have to write a budget that’s already $900 million in the hole.

But one that could help the budget could also hurt energy producers.

For the past decade, oil and gas wells owing more taxes than they earn in profit could claim a tax exemption. The claim wipes away nearly all the amount owed to the Tax Commission.

Supporters told The Journal Record’s Dale Denwalt without it, their wells would lose money and shut down:

“That’s about the dumbest thing I’ve heard in a long time,” said Ada oilman Mike Cantrell, chairman of the National Stripper Well Association, after hearing about Senate Bill 1024. “Why would we sacrifice our resources just because the price is down for a while? Why would we ever let a tax plug out a resource?” Historical data show there is little consistency with exemptions claimed on economically at-risk wells. An analysis by the Oklahoma Policy Institute noted that claims made between 2004 and 2008 totaled $1.4 million, almost exactly the value of claims in 2010 alone. The at-risk wells can receive an exemption equal to six-sevenths of the levied tax.

Most that qualify are marginal wells that produce only a few barrels a day.

In a bill filed this month, state Sen. Mike Mazzei proposed ending the exemption for the next two years to help pick away at the budget shortfall. Mazzei said an early estimate shows that the exemption could cost the state $90 million this year. That’s significantly higher than in the past, Denwalt writes:

“As the Senate Finance (Committee) chairman, I believe it’s my responsibility, with a billion-dollar revenue shortfall, to put before the members of the Senate a large number of financial management options to get the state back on a better financial track,” said Mazzei, noting that SB 1024 is just one of many proposals he will introduce in 2016. “We just may not be able to afford all the tax credits that are on the books.”

Mazzei urged industry advocates to stop protecting their own turf and start pitching in to help support core services, like schools.

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Brian Hardzinski is from Flower Mound, Texas and a graduate of the University of Oklahoma. He began his career at KGOU as a student intern, joining KGOU full time in 2009 as Operations and Public Service Announcement Director. He began regularly hosting Morning Edition in 2014, and became the station's first Digital News Editor in 2015-16. Brian’s work at KGOU has been honored by Public Radio News Directors Incorporated (PRNDI), the Oklahoma Association of Broadcasters, the Oklahoma Associated Press Broadcasters, and local and regional chapters of the Society of Professional Journalists. Brian enjoys competing in triathlons, distance running, playing tennis, and entertaining his rambunctious Boston Terrier, Bucky.
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