Oil Extraction Tax Memorandum for North Dakota; Tax Updates; North Dakota Oil And Gas Tax Miscellaneous

Oil Extraction Tax -- Background Memorandum -- Prepared by the North Dakota Legislative Council staff for the Taxation Committee, August 2011. This memorandum does not address the Oil Production Tax.

Data points take from that document

Refer to original document if questions or possible typographical errors in transcribing and for more complete information

1980

• State-approved initiated measure No. 6: established an oil extraction tax as a companion to the oil and gas gross production tax that existed since 1953; the oil extraction tax rate was established at 6.5 percent of the gross value of oil at the well and has remained at that rate, except for full or partial exemptions
• The initial tax extraction tax law provided exemptions for oil exempt from gross production taxes, up to 100 bopd owned by a royalty owner, and oil from a stripper well, defined as 10 bbl or less per day

1987

• Stripper wells re-addressed: 10 bpd for wells at 6,00 feet or less; 15 bpd for wells 6,000 to 10,000 feet, and 20 bpd for wells >10,000 feet deep
• For wells drilled and completed after April 27, 1987, and for qualifying secondary or tertiary recovery projects, the rate of tax was reduced from 6.5 percent to 4 percent of gross value at the well
• In addition to that reduction, production from new wells completed after April 27, 1987, was given a full extraction tax exemption for the first 15 months of production
• A trigger provision was included so that the rate would return to 6.5 percent if the average price of oil between June 1 and October 31 of any year is $33 per barrel or more
• The royalty owner exemption was eliminated

1989

• An exemption was created for production during the first 12 months after a well has been worked over; certain costs thresholds were mandated; applied only to wells producing no more than 50 bbls of oil before beginning the project (50 bbls over what time span? day, month, year? probably day)

1991

• trigger mechanism adjusted for any period of five consecutive months, rather than the June to October time frame; $33 oil still the threshold
• 5-year exemption for oil produced from a secondary recovery project
• 10-year exemption for oil produced from a tertiary recovery project
• EOR exemption applied only to the delta

 1993

• Exemption for the first 12 months of production after workover was amended, based on cost and production numbers
• Reduced the tax rate from 6.5 percent to 4 percent for production from a workover well after the 12-month exemption period

1995

• A 24-month oil extraction exemption for production from a horizontal well
• A 10-year exemption for production of oil from a well that has been inactive for two years; subject to trigger mechanism
• A nine-month exemption for production from a horizontal reentry well; subject to trigger mechanism
• Stripper well classification revised: 30 bopd for wells deeper than 10,000 feet

1997

• A five-year extract tax exemption for production from new wells within the boundaries of an Indian reservation on tribal trust lands or land owned by a tribe (think KOG, WMB)

2001

• Trigger provision for exemptions and rate reductions was amended to clarify when the trigger was to become effective; trigger price was defined as $35.50 per barrel, as indexed for inflation

2003

• A temporary exemption from gross production tax was provided for gas produced from shallow gas wells, with an expiration date of June 30, 2007
• The two-year inactive well exemption was amended to clarify the definition of a two-year inactive well and to provide an 18-month provision to qualify the well for an exemption to be consistent with other oil extraction tax exemptions

2005

• A sales and use tax exemption for carbon dioxide used for the enhanced recovery of oil or natural gas

2007

• An oil extraction tax reduction to 2 percent for the first 75,000 bbls of oil during the first 18 months after completion from a horizontal well drilled and completed in the Bakken formation from July 1, 2007, through June 30, 2008
• The gross production tax exemption for shallow gas was made permanent for the first 24 months of production
• Extensive language regarding wells in the reservation which I won't repeat here

2009

• A contingent rate reduction in the oil extraction which reduced the oil extraction rate for horizontal wells from 6.5 percent to 2 percent during the time the rate reduction is in efect
• Existing law provides a complete oil extraction tax exemption that triggers into effect if the price of oil for five consecutive months remains below the trigger price; because the exemptions did not trigger into effect, the rate reduction provided by the earlier bill remained in effect through October 2009
• The rate reduction can trigger into effect again if the average price for any month drops below $55
• The rate reduction applies to oil produced during the first 18 months after completion for a horizontal well and is limited to the first 75,000 bbls or the first $4.5 million of gross value at the well
• If the rate reduction is effective on th edate of completion of a well, the rate reduction applies to production from that well for up to 18 months after completion, even if the price of oil rises to more thn $70
• If the rate reduction is ineffective on the date of completion of a well, the rate reduction does not apply to production from that well at any time
• The triggered rate reduction was scheduled to expire June 30, 2012, but the expiration date was extended to June 30, 2013, by 2011 House Bill No. 1467

Proposed amendments to 2011 Engrossed House Bill No 1467

• Provide for immediate elimination of most existing extraction tax exemptions and a substantial change to the stripper well exemption
• Reduce the 6.5 percent oil tax extraction tax rate by one-half percentage point when statewide daily production reaches 425,000 bopd; 650,000 bopd; and 700,000 bopd.
• At statewide daily production of 700,000 bopd, the extraction tax rate would be 4 percent and would remain at that rate
• At the 425,000 bopd, the stripper well exemption would not apply to new wells drills on a Bakken pool stripper well property until production from that well declines to a level that meets the statutory requirements for an individual stripper well

July 1, 2013

• Natural gas tax break: tax incentives for capturing and using the byproduct of the state's booming crude production. The Bismarck Tribune has a short note on the law.