American Oil and Gas Reporter - May 2016 - 83

ConventionSection: Oklahoma Independent Petroleum Association

Budget Dictates Sooner State Session
OKLAHOMA CITY-The winds that
sweep across Oklahoma's plains need to
stop blowing dollars out of state coffers,
insists the Oklahoma Independent Petroleum Association. During a year in which
the state's top tax-paying industry-oil
and gas-struggles and hopes the load
will not increase, wind energy producers
continue to enjoy tax, regulatory and subsidy advantages that OIPA and others
say have endured too long.
Correcting that is one of OIPA's goals
during the 2016 Oklahoma Legislature,
relates OIPA Vice President of Legislative
Affairs James Roller. He indicates OIPA
is a member of the Windfall Coalition,
which also includes a number of Oklahoma
businesspeople, stakeholder groups, and
oil and gas companies. The coalition's
website calls on policymakers to:
* Eliminate Oklahoma's four windgeneration subsidies;
* Assess a production tax on the
wind industry; and
* Regulate the wind industry.
Roller says this comes in the context
of a major state budget deficit, much of
which is attributable to slumping oil and
gas prices and sluggish industry activity.
As usual, he notes, OIPA is backing a
number of bills in an ongoing effort to
improve the business climate for the
state's oil and gas operators. But, Roller
adds, that is only part of the approach.
"One piece of OIPA's overall strategy
is defensive in nature, given the state's
$1.3 billion budget shortfall," he details.
"When oil and gas is your state's largest
sector, we know that tough times in the
industry also create tough times for state
budgets. We are working to ensure that
we don't continue to be the sole source
for increased tax revenues in a trying
time for commodity prices."
Busted Budget
According to OIPA, efforts to increase
Oklahoma producers' tax load include
proposals that jeopardize tax provisions
for economically at-risk wells. Considering
how miniscule the margins for such wells
are, OIPA President Mike Terry observes,
times such as this are precisely why such
provisions exist. "It is why they were set
up," he muses. "It is our job to educate
legislators and get them thinking about
next year and beyond. We have to take
care of these assets, so they can continue

to provide the state with jobs and tax
revenue. If they are under water, people
simply are going to quit producing them
and, in many cases, they will not come
back. Businesses that do not make a
profit do not pay taxes; it is not much
different for wells that cannot turn a profit."
Terry notes that oil and gas production
accounts for a sixth of the state's jobs
and a third of its gross domestic product.
"Oil and natural gas producers also account
for approximately 25 percent of all taxes
paid in the state," he reports. "But oil
and natural gas producers do not receive
subsidies from the state. Taxes are paid
on every barrel of oil and every Mcf of
natural gas produced in the Sooner State."
OIPA Chairman Jeffrey McDougal,
president of JMA Energy Company LLC
in Oklahoma City, acknowledges some
frustration when media or politicians
refer to oil and gas production "subsidies,"
considering how measures in the state
and federal tax code for oil and gas production amount to a government merely
not taking as large a bite of companies'
revenues as it otherwise would. "Oil and
gas do not get any subsidies," he emphasizes. "Any tax relief is nothing more
than getting back what we already have
paid in. Meanwhile, wind pays no gross
production, ad valorem or sales taxes."
Moreover, he continues, even if Oklahoma policymakers were not exhibiting
second thoughts about those tax credits,
the state's budget crunch make them inadvisable. According to the Windfall
Coalition, the state would gain $200 million this year from ending subsidies and
another $74 million from assessing a
gross production tax on wind generation.
"We are working diligently to ensure
that energy development in this state is
done on a level playing field," Roller
says. "We contribute more than $700
million a year to the state coffers. Meanwhile, the wind industry-through tax exemptions, credits, and lack of oversight-
actually receives benefits of $200 million
from the state."
McDougall suggests that even if Oklahoma wanted to keep all the wind incentives, they are unaffordable. "I also think
legislators are realizing the wind industry
is long past that. The federal credits have
been renewed, and certainly the wind industry does not need state credits, too,"

he says.
Moreover, the law places no limit on
the amount of wind incentives the state
can pay out, the Windfall Coalition details,
so that if the incentives remain unchanged,
they are on pace to cost the state $1.3
billion during the next 10 years. "I admit
I am embarrassed it has gotten to this
point," Terry says. "Wind energy really
has been well-promoted and has built
quite a stronghold here."
The Windfall Coalition says Oklahoma's wind generation incentives include:
* 10-year zero emission tax exemptions;
* 15-year investment tax credits;
* Five-year ad valorem tax exemptions; and
* Manufacturers' sales tax exemptions.
"We have the most generous wind
subsidies in the nation," Roller describes.
"Their contribution to the state in the
form of any taxes paid is zero. There are
a number of bills still moving regarding
regulatory oversight and taxes. We are
supportive of all energy bills that create
a more equitable tax and regulatory policy."
The regulatory adjustments OIPA
would like to see include bringing wind
generation under the Oklahoma Corporation Commission's structure for issues
such as siting and reporting, McDougall
says. "Oil and gas producers have metering
and tax records," he notes. "Wind companies have no meter requirements, and
are to report their production on a goodfaith basis. We want some kind of reporting
method to clarify the picture."
Terry concurs that wind production
should play by the rules that bind other
energy producers. "If a wind farm is
going up, the wind company should have
to provide sufficient notice to land and
mineral interest owners," he holds. "We
cannot drill wells with a wind farm in
the way."
Breaking Late
Like much of the legislation during
the 2016 legislature, Roller explains, the
fate of many bills will not be decided
until late in the session. "Most bills will
deal with finding revenue to fill the budget
hole," he relates. "These bills will be
drafted through the budget process. The
legislature is working to identify credits
MAY 2016 83

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