If the low price of crude oil continues, North Dakota state legislators may reconsider extending tax incentives for oil producers, according to the Forum News Service (FNS).
North Dakota Insurance Commissioner Ryan Rauschenberger said, “If we end up having a few more months like this, it could raise awareness and get some analysis done.” The statement was made in an announcement that reported the first of a series of incentives has been triggered. House Bill 1437 will have its first hearing this week and if approved, would extend a 4.5 percent reduction of the oil extraction tax triggered by low oil prices through 2019. Since the state’s oil revenue projections have been reduced, though, there is a good chance the bill will be amended.
The tax trigger is currently scheduled to last through June 30 and would affect new wells drilled after February 1. This price trigger is implemented when the West Texas Intermediate (WTI) benchmark stays below an average of $57.50 for one month. The current tax incentive applies to a well’s first 75,000 produced barrels or the first $4.5 million of gross value after completion for its first 18 months in operation. The FNS reports that at $45 per barrel, for example, the incentive would equal roughly $152,000 in savings for each well.
The extraction tax reduction does not impact county revenue generated by the gross production tax, though. According to Rauschenberger, the low price of crude mostly impacts state revenue. He said there has been some chatter in the industry about stalling operations until the incentive is implemented, but on a $10 million well it would be more costly to wait. So far, no bills have been introduced to address the tax trigger which would drop the rate to zero percent. For that larger trigger to be applied, WTI prices would have to be below $55.09 for a period of five months.