North Dakota Oil Revenue Study, 2008 - 2018

Released January 25, 2019.

When clicking on the link, a pdf is likely to download on your desktop: it will be a two-page glossy document.

Crude oil:

• extraction tax, 5% of the gross value of oil production at the well
• gross production tax (in lieu of property tax), 5% of the gross value of oil production at the well

Natural gas:

• gas production is taxed on a volume basis at a rate determined by the movement of a fuels cost index

Tax Break Unlikely To Be Triggered -- May 13, 2015

Just as I thought: it was unlikely we would have five months of WTI oil being priced below $52.29 (or whatever the "official"/"required" number was) to trigger the tax break for oil companies in North Dakota.

The AP via Bakken.com is reporting:

Unless oil prices take a sudden nosedive, North Dakota’s petroleum industry won’t start reaping the benefits of a tax cut that would decrease state tax collections by about $80 million a month through November.

State Tax commissioner Ryan Rauschenberger and North Dakota Petroleum Council President Ron Ness say the “trigger” tax break for the oil industry likely won’t happen.

If oil prices average below $55.09 a barrel in May, it will mark the fifth straight month that they will lag below the trigger price and the tax break will go into effect. But oil prices have been about $4 above that so far this month.

Tuesday, April 21, 2015 -- Ducks

Active rigs:

	4/21/2015	04/21/2014	04/21/2013	04/21/2012	04/21/2011
Active Rigs	93	184	185	210	176

RBN Energy: getting Permian crude to the coast.

The flood of domestic light shale crude showing up at the Texas Gulf Coast by pipeline in the past two years is not best matched to most refineries in the region that are configured to run heavier crude. But flows across the Gulf Coast to refineries in the Mississippi Delta more suited to process light crude are constrained by a lack of pipeline capacity between Texas and Louisiana. New domestic shale crude has been delivered to eastern Gulf Coast terminals such as St. James by rail but narrowing coastal differentials to inland prices have reduced the CBR advantage. Today we detail how new pipeline projects promise to increase the flow of crude from Texas to the Eastern Gulf.

Last week we described the strong market share of takeaway capacity out of the Permian held by Plains All American (PAA) that is in the process of bringing the Cactus pipeline online linking Permian and Eagle Ford infrastructure (see When Are You Going to Come Down). Earlier this year PAA completed the Sunrise pipeline that facilitates 250 Mb/d of crude flows from Midland, TX to Colorado City, origin of the PAA/Magellan BridgeTex pipeline that now delivers up to 300 Mb/d of Permian crude to Magellan’s East Houston terminal (see Good Day Sunrise). Takeaway capacity out of the Permian has increased in line with growing production – especially in the Midland and Delaware basins as we described in our Come Gather ‘Round Pipelines series last year. Originally Permian crude flowed mainly to the Midwest Cushing, OK trading hub – delivery point for the CME NYMEX West Texas Intermediate (WTI) futures contract.

A surplus of supplies at Cushing led to infrastructure development to deliver Permian crude to the Texas Gulf Coast in the past two years – first from an extension to the Sunoco Logistics (part of Energy Transfer Partners) West Texas Gulf pipeline delivering to Houston and Nederland, TX in 2013 and then from the Magellan Longhorn reversal that now delivers up to 275 Mb/d Permian crude to Houston – joined by the Sunoco Permian Express I (150 Mb/d to Nederland) and then BridgeTex in 2015. A further 200 Mb/d will flow on the Permian Express II out of Colorado City by the end of summer 2015.

Reuters at Rigzone: No Need to Fear US Crude Supply Deluge.

Conventional wisdom holds that come June a pending $5.3 billion tax break in the No. 2 U.S. oil producing state, combined with a modest uptick in oil prices, will unleash a tsunami of new shale crude supply so big that prices may slump again.

Just one problem with that scenario: oil producers say this is not going to happen. The fear of a worsening supply glut, a recurring theme of many industry research reports and conferences over the past two months, is based on a view that U.S. shale producers have built up a heavy backlog of drilled but uncompleted wells (DUCs) that can be turned on quickly.

The assumption is that oil firms will finish work on those wells, known as "ducks" in the industry jargon, once oil prices recover further and North Dakota activates its tax relief in response to a long market slump.

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

You Ate Them All?

Quick Look At WTI -- April 15, 2015

Cushing, Oklahoma, WTI spot price FOB, dollars per barrel (beware: the link may take a long time to load; watch the spinning wheel or the sand glass):

I do not know the "number" the NDIC has posted. In an earlier post, I thought February was the first month to begin the five-month "window." But the table above suggests January was the first month. If so, we are in the fourth of five months. So, we'll see.

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

Iowans And Hillary

Delilah, Tom Jones

Update On Tax Break Operators Get If Price Of Oil Remains Low; The Magic Number Is $52.95 -- March 3, 2015

Reuters is reporting:

WILLISTON, N.D., March 3 (Reuters) - The clock is still ticking on a potential $5.3 billion, two-year tax break for North Dakota's oil industry after a state-calculated average of February's crude price fell below $52.59 per barrel last month. 

The state waives its 6.5 percent oil extraction tax if the monthly price of benchmark West Texas Intermediate (WTI) crude at the Cushing, Oklahoma, transport hub falls below an inflation-adjusted limit, set at $52.59 per barrel for 2015, for five consecutive months. 

For February, the average calculated price was $50.86 per barrel, according to North Dakota Tax Commissioner Ryan Rauschenberger. The average was an increase from the January average of $47.98 per barrel.The tax break kicks in if the average monthly price is below that $52.59 level for each of the next three months. If it is off even one month, the clock resets.  [The delta between $52.95 and $50.86 = $2.09.]

The tax returns if the average price exceeds that level for a subsequent five consecutive months. The countdown, which has officially entered its second month out of a possible five, holds the promise of crucial financial incentive for oil producers and their contractors in the No. 2 oil-producing U.S. state as they grapple with a roughly 50 percent drop in crude prices since last summer. 

Indeed, many North Dakota energy companies have sharply scaled back drilling and hydraulic fracking. A tax break could encourage activity to pick back up in June, even if oil prices do not rebound. North Dakota legislators designed the tax waiver in 1987 specifically with that very goal in mind. 

Rauschenberger estimates North Dakota will take in $2.9 billion in oil taxes in the next two years without the oil extraction tax. With the tax, the projection is $8.2 billion.

The Clock Is Ticking .... February 5, 2015

Reuters via Rigzone is reporting:

Tumbling crude oil prices have started the clock ticking on a potential $5.3 billion, two-year tax break for North Dakota's oil producers.

The countdown, which started this week, holds the promise of a silver lining of sorts for oil producers and their contractors in the No. 2 oil-producing U.S. state, many of whom have struggled with a roughly 50 percent drop in oil prices since last June.

North Dakota officials designed the tax waiver in 1987 to encourage drilling. Here's how it works:

North Dakota waives its 6.5 percent oil extraction tax if the monthly price of benchmark West Texas Intermediate (WTI) crude at the Cushing, Oklahoma, transport hub falls below $52.59 per barrel for five consecutive months.

For January 2015, the average price was $47.98 per barrel. "Since January prices were well below the required price for the large trigger, we are now in our first month," said Ryan Rauschenberger, North Dakota's tax commissioner.

The average monthly price has to be below the $52.59 level for each of the next four months. If it's off even one month, the clock resets.

The tax returns if the average price exceeds that level for a subsequent five consecutive months.

How much difference does the extraction tax make?

Rauschenberger estimates North Dakota will take in $2.9 billion in oil taxes in the next two years without the oil extraction tax. With the tax, the projection is $8.2 billion.

But already:

A mild incentive just took effect this week for new wells. The state will cut the oil extraction tax rate to 2 percent from 6.5 percent on the first 75,000 barrels of oil produced (or oil worth up to $4.5 million) on wells drilled between now and June, or until the oil price hits $72.50 per barrel. This short-term cut was designed to occur more frequently and offer a milder incentive than the larger, longer-lasting cut.

Extraction Taxes -- State-by-State Comparisons

The Dickinson Press is reporting: 

A comparison of effective oil tax rates in fiscal year 2010 of the top eight oil-producing states in the U.S. found that North Dakota had the fourth-lowest rate. Here is the ranking of the rates, with the total taxable value of oil production in each state in parentheses.

1. California — 2.5 percent ($15.2 billion)
2. Oklahoma — 6.7 percent ($11.1 billion)
3. Texas — 7.9 percent ($49.4 billion)
4. N. Dakota — 9.8 percent ($6 billion)
5. Montana — 10.7 percent ($2 billion)
6. Louisiana — 10.9 percent ($8.6 billion)
7. Wyoming — 13 percent ($8.3 billion)
8. Alaska — 25.1 percent ($14 billion)

Source: Covenant Consulting Group study commissioned by the North Dakota Department of Commerce.

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.