Oil execs tax talk has became a child’s game of “telephone.”
Remember that childhood game “telephone?” Telephone is a game where a gaggle of kids would gather and learn about spreading rumors and misinformation. The game began by one child whispering a sentence into the ear of another.
“The puppies are cute, spotted and tan.”
Then the other child whispers the sentence verbatim in another child’s ear. This continues with each child playing the game. Often times a couple of the words are changed or jumbled in the journey to the last ear. The game then comes to a culmination when the last person says the sentence to see how close they are to the original.
“Jack Ekstrom wants to cut the oil tax and steal our puppies.”
Now imagine that game being played with adults and the first ear you told was the nation, sans the world. This example recently played out in the Bakken with Whiting Oil’s Jack Ekstrom.
Recently I attended the North Dakota Association of Oil and Gas Producing Counties annual meeting at the Grand Dakota Lodge in Dickinson, the site of the infamous game of “telephone” involving cutting North Dakota’s oil tax. Last week, I read an article online saying Ekstrom wanted North Dakota to cut the oil tax by half or they were going to take their rigs and go home.
I had to go into my files from last week to make sure I was at that same Annual Meeting. Traveling across the Dakota’s and Montana can become taxing on one’s time and mind so you never know. Turns out I was there and my notes from that event were completely different than the reporter whose story was picked up by papers and websites across the country.
No, checked my files and I was there. Jack Ekstrom, Whiting Oil & Gas, Terry XXX, Marathon Oil and Tim Butts, Continental Resources, participated in a panel discussion moderated by Jim Arthaud, CEO, MBI.
There is an asterisk on the bottom of the page that says “Panel discussion for Annual Meeting: Execs are talking business generalities to help the elected officials understand the direction of the oil companies going into the 2014 election year.”
And here are the main notes I took from the panel review in regards to Ekstrom:
– Whiting is committed to spending $1.3 billion in North Dakota in 2014
– Whiting is a corporation and are obligated to spend that money
– North Dakota has high tax rates if you compare it to other states
– There are other natural resource plays becoming competitive financially and geographical
– Oil tax has tiered system in North Dakota, fluxes
The only hard news I saw from that event was Whiting was committing $1.3B to North Dakota in 2014. Everything else from that meeting was shop talk and speculation. Sure it was important stuff, so important three busy oil executives felt the need to talk openly to the elected officials about all the directions the oil companies could go in the future.
We need to understand something as North Dakotans, oil companies are corporations and corporations do not pay taxes, they collect them. Also they are beholden to shareholders and bylaws so if they commit a certain amount of money to something, it will be spent, they are obligated to do so. Money spent on hiring contractors, hiring help, paying fees, taxes and other expenses related.
So rather than “Whiting VP wants oil extraction tax cut in half,” I heard something along the lines of Whiting is spending $1.3B in ND this year and if 11.5% goes to oil taxes and there are other plays out there, like Colorado at 5%, it will eventually become more enticing. I heard an oil executive telling a bunch of elected officials they had better understand the reality of modern day drilling.
Speculatively, I heard an oil executive allude to the notion that North Dakota can spend the money how they wish, but 11.5% to the state is a lot and the citizens had better be getting their money’s worth and the infrastructure built.
North Dakota has to understand this threat from the oil companies to leave the state if the oil taxes are not lowered is understood at all. There is no threat, there never was. The reasons for the oil companies leaving the state have always been there. And the reasons they are here pumping sweet crude hasn’t changed either.
I travel the extensively throughout the Bakken interviewing many CEO’s, truckers, executives, café servers, policy makers, locals and small business owners who are extremely knowledgeable in their industry. These people are all part of the oil and gas machine to make this energy economy work. Grand openings, BBQ’s, trade shows, cafes, street dances and industry meetings are just a few of the regular stops.
Interviewing all those experts, talking to all the locals and lease holders, I would simply ask myself these three questions when discussing an oil company exodus.
- How do private mineral rights play into this issue? This is the number one reason the oil companies are in North Dakota. North Dakota does have very high oil taxes when compared to other states. However, the private mineral rights are so valuable in the process of extracting the natural resources; oil companies will overlook those taxes to secure leases. I wonder how many leases are left to secure in the state and how long those leases are locked up for. Leases that have longer terms allow for more options by the oil company.
- The advancements in hydraulic fracturing have allowed an extraction of a quality of resources, which in turn, drastically reduces the rate of production or refining. Also the advent of pad drilling has reduced the cost of the wells to a point to where they pay for themselves in about a year-and-a-half. Will their internal savings be reinvesting into North Dakota next year or will they make cuts on the ND budgetary line?
- Why? I would always end by asking them why. The actions of the oil companies are not that they want to leave, in fact it is quite the opposite. The oil and gas companies are investing in local communities in major ways that will have a lasting impression plus supporting local swimming teams and softball teams alike. Another example of action is Whiting just sold a $860M piece of property in Oklahoma to reinvest into North Dakota and Colorado.
Whenever an individual becomes busier than anticipated they rely even more heavily on the media. In the day and age when newsrooms are laying off journalists and citizens are working multiple jobs, the media needs to be their eyes and ears more than ever. Reporting is turning more and more into the “telephone game” or some version of Mad-Libs. Here is the frame work of a story, now go make someone’s words fit.
One more fact that came from North Dakota Oil and Gas Producing Counties Annual Meeting, as long as there is oil in the ground, the companies will want to be here to pump it out. If it ever comes to them leaving the Bakken play, there will be a reason.