American Oil and Gas Reporter - August 2016 - 86

ConventionSection: Eastern Kansas Oil & Gas Association

Price Uptick Holds Promise
For Renewed Optimism
By Bill Campbell
CHANUTE, KS.-As the association
prepares for its 2016 annual convention,
Sept. 14-15 at the Prairie Band Casino
Convention Center in Mayetta, Ks., Eastern
Kansas Oil & Gas Association leaders
are hopeful for a perceived uptick in enthusiasm brought about by higher oil
prices while keeping an eye on state legislative and regulatory developments, says
President Jim Cornish.
The president of Cornish Wireline
Services in Chanute reports seeing "our
work pick up slightly" during the latter
half of June and first week of July. And
while perhaps minor, "It is an increase,"
he assures. "People are getting antsy and
want to get out and do things. They are
tired of sitting back."
The eastern Kansas industry will start
its recovery by putting idle wells back
on line, Cornish assesses. "After that will
be recompletes into upper zones and the
like," he continues.
"New wells are going to require a
higher price," Cornish adds, estimating
"probably $55 is going to give (eastern
Kansas operators) optimism."
Property Tax Bill
EKOGA spent much of the 2016
Kansas legislative session observing from
the sidelines, assesses Legislative Chairman Phil Frick with Altavista Energy in
Wellsville, Ks. The legislation that most
directly impacted oil and gas operators,
he says, was an omnibus property tax
bill, SB 280, which was passed unanimously in both the House and Senate on
May 1, vetoed by Governor Sam Brownback, and subsequently passed over the
governor's veto 39-1 in the Senate and
120-0 in the House.
EKOGA lobbyist Tom Bruno, proprietor of Bruno & Associates in Topeka,
Ks., notes that the final bill contained
property tax provisions introduced both
in SB 280 and HB 2088 that ranged from
modifying the local property tax lid passed
in 2015, interest rates on delinquent real
property taxes and tax liens, to airport
property taxes, recreation commissions,
86 THE AMERICAN OIL & GAS REPORTER

and even bed and breakfast inns.
Of interest to the oil and gas industry,
he says, were provisions dealing with
the frequency of producing-property appraisals and timing of production information used in the appraisal. In the end,
he says, legislators left the requirement
for annual oil and gas property appraisals
unchanged, but limited information used
to establish fair market value of a lease
producing before Oct. 1 to production
occurring prior to April 1 of the calendar
year in which the property was assessed.
Information used to assess leases producing after Oct. 1 is limited to production
occurring prior to July 1.
The issue, Frick points out, was flush
production from high-volume wells that
then declined rapidly. "It wasn't really
our issue because we typically don't have
big flush production around here," he remarks, saying EKOGA did not take a
position on SB 280.
Likewise, mentions Cornish, EKOGA
remained neutral on legislation to reclassify
well servicing and drilling rigs as commercial and industrial equipment to take
advantage of a tax exemption. HB 2264
was introduced in 2015 and carried over
to 2016, where it died in the House Taxation Committee.
"We felt it didn't affect eastern Kansas
as much as it did western Kansas, where
they have bigger, more expensive equipment and probably replace it more often,"
he says.
Budget And Taxes
The Kansas Legislature's consuming
issue, Bruno says, was the gap between
spending needs and anticipated revenues.
The most direct consequence of that
debate for the oil and gas industry, he
says, was conversation about repealing
the state income tax exemption approved
in 2012 for limited liability companies,
S corporations and sole proprietorships.
Once again, Cornish allows, EKOGA
stayed on the sidelines. "We did not take
a position on that," he confirms.
Although he says EKOGA has a number of small-company members able to
take advantage of the tax exemption, "it

really hasn't been an issue. I haven't
heard anybody talk about EKOGA needing
to take a strong position (to preserve the
pass-through exemption)."
"Personally," offers Frick, "I like the
idea of not taxing pass-through entities.
It's too bad the business tax cuts came at
the same time commodity prices fell
across the board, and (the state) ended
losing revenue from sources such as the
oil severance tax. It was kind of a perfect
storm."
Indeed, Bruno opines, the tax exemption may have become overmuch a whipping boy for opponents of the governor's
fiscal policies. He points out the exemption
has been calculated to cost the state approximately $200 million a year, but income tax collections as a whole have
fallen around $700 million. "The bigger
hit was going from three to two tax rates
and lowering them," he asserts.
Nevertheless, "Until the state figures
out a way to create a stable fiscal environment, (debate over repealing the exemption) will be constant," he predicts.
That means EKOGA must remain vigilant that the search for revenues does
not turn to the oil and gas industry, should
prices continue to firm, Frick acknowledges.
Bruno comments that it is difficult to
peer into the legislative future when all
statehouse legislators are up for election.
"A lot of what the future looks like and
the focus will be determined by who
wins in August and November," he says.
If more moderate lawmakers are elected, Bruno surmises, "Some of those passthrough entities may end paying some
income taxes, but I don't know that oil
and gas specifically-such as a severance
tax-would be looked at.
"We have to make sure they understand
our industry," Bruno continues. "But
would we be the number one target? I
don't think so."
Frick comments that EKOGA had
about 40 candidates for various offices
show up for its legislative barbecue June
21 in Ottawa, Ks. "It was an opportunity
for them to meet us and for us to talk
with them about exactly what it is we

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