In what state officials say would be a boon to the oil and gasindustry in Oklahoma, oil and gas drillers are expected to add totheir tax exemptions for certain types of activities underlegislation now awaiting Gov. Frank Keating’s signature.

The legislation, which provides drillers with certain exemptionsfrom the state’s gross production tax (GPT), was sent to Keatinglast Friday, and the governor has until June 10 to sign it. UnderSenate Bill 1048, tax exemptions would be allowed for enhancedrecovery projects, horizontally drilled wells, re-establishinginactive wells, production enhancement from re-completions andworkovers, drilling at 12,500 feet or deeper and new discoverywells. Oklahoma Sen. Kevin Easley (D-Broken Arrow) and Rep. LarryRice (D-Pryor) authored the legislation, and the current taxexemptions would be extended through June 30, 2003.

“This is an important step to help restore drilling activity inthe state,” said Bruce M. Bell, chairman of the Mid-Continent Oiland Gas Association of Oklahoma. “We cannot stress too highly thevalue of these two authors and the legislative leadership ingetting vital tax incentives extended.”

The extended exemptions do not apply when the average price ofcrude oil exceeds $30 a barrel of oil and $3.50 per MMbtu for gascalculated on an annual calendar basis. Previously, the cut-offlevel was $25 for oil and $3 for gas.

Keating is more than likely to sign the legislation because someof the exemptions, which are currently on the books, are set toexpire July 1. Bell said that if they don’t continue, it will be a”terrible blow” to the industry and the state. “The types ofprojects included in these exemptions play a key role in continuedindustry involvement in Oklahoma and help maintain well servicingand supply operations, and thereby continued high paid employment.”

Michael H. Bernard, president of the Mid-Continent Oil and GasAssociation, said “It’s not likely that he won’t sign it. “We’revery pleased with the legislation, and the governor has gottensignals from the business community that the state needs thislegislation.”

Most promising in the legislation, said Bernard, is a newexemption for wells drilled within the boundaries of athree-dimensional seismic shoot, and wells that are drilled basedon the 3-D technology. The new advanced seismic technology isexpensive, but has had remarkable success in finding producingformations, Bell said. Under the proposal, tax exemptions would beallowed for 18 months if the 3-D was shot before July 1, 2000. Forshoots done after July 1, 2000, the proposed legislation wouldprovide for a 28-month exemption.

Bell said that besides the work by the lawmakers, “anothercrucial factor” was the “unity within the industry. It is anexcellent example of what can be accomplished when we worktogether.” He said that the mutual cooperation betweenMid-Continent and the Oklahoma Independent Petroleum Association”displays the true concern for the entire oil and gas producingindustry in this state.”

If you are interested in the status of Keating’s decision on theproposed legislation, contact Dan Mahoney in the governor’s officeat (405) 523-4219.

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