North Dakota has eliminated an oil-price-triggered tax break for oil and natural gas producers as part of a $400 million tax relief plan for the state's residents (SB 2144). Gov. Jack Dalrymple signed the bill into law Wednesday in Bismarck.
As part of the tax package, a so-called large trigger for the oil/gas industry in response to sustained low oil prices that would have amounted to a multi-billion-dollar savings for the industry over the next two years will be eliminated in December. It could have meant substantial cuts in state revenues that stakeholders agreed would not be good for the industry or the state.
That trigger would have cut extraction taxes for the first 24 months of a new well's life. Given the nosedive in global oil prices, the trigger mechanism developed a number of years ago was supposed to incentivise producers to keep drilling in the face of significant commodity price decreases.
"The oil [tax] structure as revised will provide a predictable revenue stream for the state and the Three Affiliated Tribes [Mandan, Hidatsa and Arikara], and provide the industry a stable more competitive flat rate going forward," said a spokesperson for the North Dakota Petroleum Council. She said there were "many concerns" during the current legislative session about what would happen to revenues "if the big trigger would hit and substantially reduce tax collections for the next biennium."
The petroleum council and state officials stressed that the tax reform was a compromise by all parties, and "we can now move forward with tackling the other big challenges of the Bakken," the council spokesperson said.
SB 2144 will reduce the oil extraction tax to 5% from 6.5% on Jan. 1, and it will go back up to 6% when oil prices get above $90/bbl for three consecutive months. The bill does not change the state's overall production tax on all industries of 5%.
Dalrymple said the state's strong economy and "a longstanding commitment to sound fiscal management" continue to drive priorities in North Dakota. "Those priorities have always included keeping taxes low and returning tax proceeds to the people whenever possible."