American Oil and Gas Reporter - May 2018 - 74

ConventionSection: Oklahoma Independent Petroleum Association

Oklahoma Statehouse Events
Dampen Industry Outlook
By Dan Holder
TULSA-Washington's legislative and
regulatory climate for the energy industry
has changed for the better with a new administration in the White House, an environment made even better by global
increases in crude oil prices.
Now, muses Berry Mullennix, chairman
of the Oklahoma Independent Petroleum
Association, why can't the Sooner State
be as friendly? Speaking in advance of
OIPA's 2018 annual convention, to be
held June 8-11 at the Four Seasons Resort
and Club in Las Colinas, Tx., he notes
that while the actions and intentions coming from federal agencies such as the departments of Interior and Energy, and
the U.S. Environmental Protection Agency
are positive, the speed of the reforms is
troubling.
"Those changes are not happening as
fast as everyone would have expected,
but that is because it is hard to get some
people out of the trenches they have been
occupying for the past eight years under
the Obama administration," assesses Mullennix, president and chief executive
officer of Tulsa-based Panther Energy
Company II LLC. "Prices are helping
now, both on the domestic level of West
Texas Intermediate and foreign with Brent.
U.S. producers are getting a bit of a boost
selling oil overseas because of the spread
between Brent and WTI."
However, events at the Oklahoma
Statehouse during the past year are likely
to dampen industry optimism, Mullennix
reports, pointing to efforts to fund a salary
increase for public school teachers by
increasing oil and gas operators' tax burden. He says too many Oklahoma legislators view the industry as a piggy bank
or rich uncle that can be tapped to pay
the bills.
On March 29, Governor Mary Fallin
signed HB 1010, which increases the
state's initial 36-month gross production
tax on oil and natural gas from 2 percent
to 5 percent. The measure, introduced by
Representative Kevin Wallace, R-Wellston,
also boosts cigarettes taxes by $1.00 a
package and adds levies of $0.03 a gallon
74 THE AMERICAN OIL & GAS REPORTER

OIPA Annual Meeting
Las Colinas, Tx.
Friday, June 8
8 a.m.-5 p.m. Exhibit Booth Setup, Promenade, Las Colinas, Cottonwood Foyer
Gallery and Atrium, Four Seasons
Resort and Club
11:30 a.m.-5:30 p.m. OIPA Classic Golf
Tournament
6:30-9:30 p.m. Wildcatter Wine Mixer

Saturday, June 9
8 a.m. Exhibit Booths Open
8 a.m.-11:30 a.m. Meeting Registration
8-10 a.m. Rise & Shine Breakfast
9-11:30 a.m. General Session
12:30-3:30 p.m. Sporting Clays Tournament
Elm Fork Shooting Sports
5:30-7:30 p.m. Exhibit Booths Open
5:30-7:30 p.m. Meeting Registration
6-7:30 p.m. Bidders Reception
7:30-9 p.m. Oil Field Services Fundraising
Auction
9-11 p.m. Black Gold Auction Party

Sunday, June 10
8-9 a.m. Chapel Service
8-11:30 a.m. Exhibit Booths Open
8-10 a.m. Rise & Shine Breakfast
9-11:30 a.m. General Session
11:45 a.m.-1:45 p.m. Board of Directors
Meeting
5-6 p.m. Meet & Greet with Tomi Lahren
6-7 p.m. President's Reception
7-9 p.m. Chairman's Banquet

Monday, June 11
8 a.m.-Noon Exhibit Booth Takedown

on gasoline and $0.06 a gallon on diesel
fuel. According to media reports, the tax
increase will allow Oklahoma to boost
teacher pay by an average of $6,000 a
year.
In addition to that tax boost, Oklahomans will vote in November on State
Question 795, which would levy a 5 percent GPT on oil and gas during the first
36 months of production. Revenues from
the tax would be dedicated to increasing
teachers' salaries. Media reports say the
tax would allow for another $4,000 annually for each teacher.

Tax Hike
Oklahoma's legislators have moved
the state into a strange territory, OIPA
President Tim Wigley says. In the 1990s,
the state instituted a 1 percent tax for the
first 36 months of production to encourage
new drilling, a rate that stood until 2015,
when it increased to 2 percent. After 36
months, operators pay 7 percent.
"That really has helped, because even
during this most recent downturn, the industry fared better here than in other producing states because operators had an incentive to drill," Wigley assesses. "There
have been huge battles in the past two legislative sessions, and we may face that November ballot measure. OIPA said all session
that doing that would disincentivize drilling."
Mullennix notes the ballot question
represents one of the largest tax increases
in Oklahoma's history. Moreover, he points
out, there is some confusion about whether
the 5 percent would be added to the former
2 percent or new 5 percent tax rate.
"As I travel around, including stops in
Houston, I meet with chief executive officers of companies doing business in
Oklahoma," he says. "Some have told
me they plan to move money out of Oklahoma. Some companies tell me they are
glad the debate is over and they don't
mind the 5 percent increase."
Many larger companies can balance
their Oklahoma tax situation against their
assets across the country, and for them
Mullennix says the state's tax increase
is a small piece of the overall rate of
return. For producers that operate solely
in Oklahoma, he notes it's a different
scenario, and some of them are likely to
forgo new drilling.
"I think the state is going to get a real
boost in revenue from higher prices and
a higher tax rate initially, but in the end
all it did was give itself a bigger piece of
a smaller pie," Mullennix concludes.
Even though the state is introducing
uncertainties in its relationship with the
oil and gas industry, Wigley projects it is
unlikely that major companies, such as
Chesapeake, Devon or Continental, will
move their headquarters out of Oklahoma.
However, he points out they may relocate

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