Filloon On Possible Tax Breaks For Bakken Operators -- February 9, 2015; Dallas May Have Led Nation In Job Growth In 2014

Link here at Seeking Alpha:

• A North Dakota tax trigger implemented in 1987 may save Bakken operators $1B in 2015 production taxes.
• If the tax break is triggered, North Dakota's production tax rate falls from 11.5% to 5% for 5 months regardless of the price of oil.
• Back in April, the North Dakota legislature voted down a flat tax that would have replaced the current triggers. 

Filloon writes:

History dictates that oil revenues will fluctuate greatly, so taxation needs to be a variable that does not. North Dakota production tax rates are high when compared to other states, which has not deterred development nor do we believe it will. If we look at 2013 production tax rates, we see a wide variance:

Wyoming:  11.7%
North Dakota: 11.5%
Montana: 7.6%
New Mexico: 6.9%
Colorado: 6.8%
Texas: 6.7%
Oklahoma: 3.3%

North Dakota's best acreage is some of the best in the country and provides exceptional IRRs.

So, the percent may not be as much of an issue as triggers built into the current system. Currently, North Dakota has an oil extraction tax of 6.5% and gross production tax of 5%.

The extraction tax has a built-in tax break if oil drops below an inflation adjusted limit set at $55.09/bbl. for 2015. If the realized price of WTI is below that number for 5 consecutive months, then the 6.5% tax is dropped for the first 24 months of the well's life. After the 24 months are up, the tax is reinstated, but at a 4% rate for the well's life, not 6.5%. Keep in mind, a well will produce for 35 to 40 years, so the effective tax break would cover that period of time.

The 5% gross production tax is not affected, and will continue throughout the period regardless of oil price.

This tax trigger may not be relevant today, as it was implemented in 1987 after the last oil boom went bust. Legislators had hoped that this tax reduction would bring vertical development back to the state. At the time, this mattered little as oil prices and technology didn't provide the economics needed. This law was also predicated on vertical production, which is relatively consistent throughout well life, where current horizontally fracked wells produce 19% of total resource in the first year. Half of all production occurs in the first 5 years, so we essentially provide a break on more resource than the trigger had initially envisioned. So, this front heavy production is hit especially hard by the tax break. Also, crude prices generally crash quickly and recover long before 24 months are up, so North Dakota's break reaches too far into the future. To provide an idea of what this trigger could save Bakken operators, I have provided data below on a per well basis.

Much more at the link.

With Citi's recent analysis, the trigger will be pulled -- it's just a matter of time ...

The recent surge in oil prices is just a "head-fake," and oil as cheap as $20 a barrel may soon be on the way, Citigroup said in a report on Monday as it lowered its forecast for crude. 

Despite global declines in spending that have driven up oil prices in recent weeks, oil production in the U.S. is still rising, wrote Edward Morse, Citigroup's global head of commodity research. Brazil and Russia are pumping oil at record levels, and Saudi Arabia, Iraq and Iran have been fighting to maintain their market share by cutting prices to Asia. The market is oversupplied, and storage tanks are topping out.

If oil goes to $20/bbl on supply and demand fundamentals, car companies and airlines are going to do very, very well. Can hardly wait.

*******************************************

World's Largest Theme Park To Be Built In Ft Worth, Texas

 Link here.

*******************************

Dallas May Have Led Nation In Annual Job Growth 

Dallas News is reporting:

Texas added more jobs in 2014 than any other year in history despite declining oil prices for half of the year — but the picture may not be as rosy in the months to come as the effects of oil-related layoffs hit home.

The state gained 457,900 jobs in 2014, which translates to a healthy annual job growth rate of 4 percent, according to data released Friday by the Texas Workforce Commission. The state’s job growth rate in 2013 was 2.9 percent.

Texas probably led the nation in job creation in 2014, but the state-by-state data needed to make comparisons won’t be released by the federal government until Tuesday.

I heard from a local individual that he had seen the data and yes, indeed, Dallas led the nation in job creation last year. So, hearsay now; we'll know more later this week.