Daily GPI / Production / NGI All News Access

North Dakota Could Lose Millions in Revenue With Oil Price Drop

If oil prices stay at $50/bbl or lower for five months or longer, North Dakota's revenue stream from the oil patch could be cut by as much as $100 million per month, state energy and tax officials said Wednesday.

North Dakota maintains a 6.5% oil extraction tax and a 5% gross production tax, but the triggers tied to the price of West Texas Intermediate (WTI) are only applicable to the extraction tax, which has incentives built into it. In that regard there are both small and larger triggers for lowering the tax burden on producers to encourage continued production in the midst of depressed oil prices.

If the average WTI price is below $57.50/bbl for one month, which it has been, a small trigger is effective the next month.

"We're seeing the lowest prices for Bakken crude since late 2008, and that is going to raise the expectations for lower state revenues that a couple of tax triggers are going to kick in," said Lynn Helms, director of the state’s Department of Mineral Resources.

The first, or small trigger, to the extraction tax applies to new horizontal wells drilled. "It looks as if January will be our first one-trigger month," said Ryan Rauschenberger, state tax commissioner, who expects the average WTI price this month to be well below $57.50/bbl. That means the extraction tax on all new wells after Jan. 31 will drop to 2%.

That could mean the loss of about $170,000 per new well and potentially up to $120 million in state revenues if the trigger stays in effect until June, Rauschenberger said. If more wells are completed each month than now estimated, there could be another $85 million of lost revenue, he said.

There are 775 wells that have been drilled but operators have delayed completing. All of those wells would be eligible for the lower extraction tax under the current scenarios, Rauschenberger said.

"This is an incentive to have those wells completed sooner, rather than later," Rauschenberger said. "That is the trigger for new wells."

The trigger for all wells, or larger overall market, is based on a five-month period in which the monthly posted Nymex price for WTI at Cushing, OK, stays below $55.09/bbl.

What is expected this month will have to be repeated for five consecutive months to trigger the extraction tax drop to 4% for older wells that have been producing for more than 24 months. For newer wells in their first 24 months of production, the tax drops to zero for the number of months before reaching the 24-month production milestone.

Rauschenberger's estimates that there could be up to $100 million per month of lost revenue from the larger trigger if it went into effect after June. The higher rate of 6.5% has been effective since 2004, he said, after being at the triggered lower 4% rate from 1987 to 2004.

For the higher rates to trigger back, the average monthly WTI price must stay above the $55.09/bbl threshold for five consecutive months.

ISSN © 2577-9877 | ISSN © 1532-1231

Recent Articles by Richard Nemec

Comments powered by Disqus