American Oil and Gas Reporter - June 2014 - 39

Oklahoma Cuts Gross Production Tax
OKLAHOMA CITY-After devoting
significant time and effort to maintaining
the state's gross production tax incentives
during many recent legislative sessions,
the Oklahoma Independent Petroleum
Association can hope to focus on other
matters in future sessions after the 2014
Oklahoma Legislature passed a bill in
late May.
Governor Mary Fallin has signed HB
2562, legislation lowering the GPT rate
for new oil and natural gas wells, which
passed the House of Representatives 6124 and cleared the Senate 30-14, OIPA
reports.
Under the state's former structure, the
incentive slashed the GPT to 1 percent
during the first four years of a horizontal
well's life. However, when Oklahoma
established the incentive in the 1990s,
press accounts say, lawmakers also included an expiration date, after which all
production would be taxed at the state's
standard 7 percent. OIPA successfully

persuaded the legislature to extend the
incentive many times, but each extension
tended to last only a few years (AOGR,
February 2013, pg. 19). The new legislation does not sunset, OIPA notes, and so
provides companies more certainty as
they plan their drilling programs.
According to the association, HB 2562
sets all new wells'-both horizontal and
vertical-initial GPT rate at 2 percent for
36 months. The upshot is, says OIPA President Mike Terry, all Oklahoma oil and
natural gas producers of all sizes have a
permanent tax incentive for any new well.
"There is competition every day to keep
drilling dollars here in Oklahoma," Terry
reflects. "Maintaining a competitive business climate is essential, and a tax structure
that encourages producers large and small
to increase development of oil and natural
gas in Oklahoma is an important part of
that equation."
OIPA notes that HB 2562 also prevents
a suite of other oil and gas tax provisions

from expiring, including provisions for
enhanced recovery projects for economically at-risk wells, re-established production at inactive wells, production enhancement projects, discovery wells, and
3-D seismic shoots.
The association credits Fallin and a
number of other allies for helping the
bill navigate the process. "Passage of HB
2562 would not have been possible without
the hard work of many, including Speaker
of the House Jeff Hickman, R-Fairview;
Senate President Pro Tempore Brian Bingman, R-Sapulpa; Senator Rob Johnson,
R-Yukon; Senator Bryce Marlatt, RWoodward; and the countless OIPA members who made phone calls and filled the
halls of the Capitol in the days leading to
the vote," OIPA states. "Given the session-long debate that surrounded the horizontal well tax provision, approval of
the bill in the Senate and House is a significant victory for OIPA and the industry."
❒

Pro-Industry Bills Advance In Illinois
SPRINGFIELD, IL.-Two pieces of
legislation relating to well permitting are
advancing in the Illinois statehouse, with
HB 5567 setting deadlines for ruling on
permits, and SB 3456 requiring acceptance
of an affidavit of nonproduction when
reviewing permit applications.
Brad Richards, executive vice president
of the Illinois Oil & Gas Association, reports IOGA supports both measures,
while opposing several proposals that
seek to limit hydraulic fracturing operations in the state.
HB 5567, introduced by Representative
Brandon Phelps, D-Harrisburg, requires
the Illinois Department of Natural Resources to grant or deny oil and gas applications for permits to drill within 20
business days of their submission, unless
the permit applicant and agency agree to
extend the deadline. According to the
Illinois Legislature's website, petitions
for drilling units must be accepted and
filed within 10 business days of receipt,
with public hearings on those petitions
scheduled no sooner than 30 days and no
later than 60 days after they are filed.
Under the bill, IDNR then has 20 working
days after the hearing to grant or deny
the petition.
As originally filed, HB 5567 required
IDNR to decide on an APD within five
days, a requirement the department opposed. IOGA says an amendment to the

bill introduced the 20-day compromise.
Another amendment, approved by the
House, removed provisions that required
IDNR to issue a permit if it failed to respond in a timely manner to any application or submission of additional information within a certain amount of time
after an initial submission.
"IOGA anticipates the governor will
sign HB 5567, because IDNR did sign
off on it, even though it does impose a
deadline," Richards reports.
He adds impetus for the legislation
arises from the long permitting delays
producers are enduring.
"If nothing else, this legislation is
meant to put the department's feet to the
fire," he says. "It is not so much directed
to the folks within the Division of Oil &
Gas, because IOGA thinks they are working very hard with the resources they
have. HB 5567 seeks to spur some changes
including, but not limited to, increasing
staffing."
Richards adds IDNR told him it has
posted several job openings for APD reviewers.
Inactive Wells
As amended, SB 3456, sponsored by
Senator William Brady, R-Bloomington,
establishes the criteria IDNR may consider
when determining operability for oil and
gas leases submitted with an APD, and

whether prior oil and gas leases covering
the property have terminated because of
nondevelopment or nonproduction under
the current permittee, the bill says.
Under the proposal, in addition to
other evidence, IDNR may rely on affidavits of nondevelopment or nonproduction from individuals familiar with the
lease, and such testimony and evidence
create a rebuttable presumption that there
has been no development or production
on the lease for at least 24 consecutive
months subsequent to the primary term's
expiration or extension as provided in
the lease language, the bill says.
Richards says the need for SB 3456
comes out of the industry's interest in
the New Albany Shale and the Mississippian Lime-analogous plays in the state.
"They are bringing a lot of interest into
areas where there is a high potential for
inactive wells, essentially orphaned wells,"
he points out.
Too often in the past, the state has
been slow to place those wells on its
plugging and restoration list, leaving such
a well without any administrative record
documenting its inactive status, he says.
The proposed bill streamlines that process.
According to the bill, after IDNR accepts the rebuttable presumption, SB 3456
allows the current permittee 30 days to
request a hearing to rebut the presumption
before it makes a final determination on
JUNE 2014 39
American Oil and Gas Reporter - June 2014

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