GPT Rally for the Rigs

Months ago, the Oklahoma Independent Petroleum Association and the Oklahoma Oil and Gas Association received permission from the Oklahoma State Capitol to host their Rally for the Rigs, an event highlighting the importance of the oil and gas industry in Oklahoma. On Monday night, however, the House of Representatives advanced HB 1010XX, which raises the state’s gross production tax incentive rate on oil and gas wells. That slightly shifted the goal of Tuesday’s event.

Because the House advanced the revenue measure and its GPT increase Monday, oil workers, executives and supporters assembled Tuesday at the Capitol not just in support of the oil and gas industry, but also to express vehement opposition to the bill as well.

“Isn’t it obvious that the oil and gas industry is what generates the most revenue in the state?” said D.C. Chandler, director of business development at BlueWater Energy Services. “There’s so much that comes out of the oil and gas industry as far as products we use everyday to creating jobs (…) people don’t realize a lot of that is generated by oil and gas.”

OKOGA and the OIPA had both made clear they oppose any revenue plan that includes a 5 percent GPT incentive rate, though they previously supported a 4 percent rate as part of the Step Up Oklahoma plan that included broader revenue from a higher cigarette tax and higher fuel tax. The issue came to a head Wednesday night, as the Senate passed HB 1010XX as well, sending a 5 percent GPT incentive rate to Gov. Mary Fallin, who said she would sign it today.

Prior to the revenue package passing the House on Monday, OIPA chairman Berry Mullennix expressed his concerns in a press release about what ultimately transpired Wednesday.

“An increase to 5 percent eliminates the economic advantage that has made Oklahoma one of the top places for oil and natural gas investment in the world and would deter future investment in our state,” Mullennix said.

According to the OIPA media release, one out of every six jobs in Oklahoma originates within the oil and gas industry, and oil and gas taxes account for $1 out of every $4 Oklahoma receives. In 2016, Oklahoma was ranked as the second most attractive worldwide location for oil and gas investment by the Fraser Institute’s Global Petroleum Survey of 2017.

Chad Warmington, president of OKOGA, agreed with Mullennix and shared his own thoughts on the policy debate.

“Making the state more dependent on gross production tax is really bad policy,” Warmington said in an interview Tuesday. “If you’re a teacher, and they’re basing your pay raise off of that unstable source of revenue, that’s a bad deal for teachers.”

The Oklahoma Policy Institute, however, has argued that raising the GPT wouldn’t discourage future drilling investment and would produce minimal fluctuation in the industry. OPI has cited a 2016 study to say Oklahoma’s GPT rate is lower than other states, but OKOGA and OIPA have referenced other studies that draw other conclusions, including one by the Oklahoma State Chamber Research Foundation.

“We’re happy to be a part of a broader solution, but not 40 percent of all the revenue that was raised in the bill,” Warmington said. “The Legislature is making bets with fools gold, continuing to spend gross production tax as if it’s going to be there all the time, and it’s not.”

‘I don’t know if we can make everyone happy’

Although oil and gas is an enormous Oklahoma economic staple, education is still a critical issue. The average teacher salary in Oklahoma is $42,460, which has been ranked as the lowest average in the nation. State-appropriated education dollars have declined in Oklahoma substantially, by some measures as much as 28.2 percent since 2008.

Rep. Zack Taylor (R-Seminole) is from an oil and gas family but also wants to see teachers get a pay increase. He voted in favor of HB 1010XX, which will ultimately finance pay raises passed by the Senate on Wednesday night.

On Tuesday, Taylor said that perhaps a more diverse economy with a greater emphasis on technology and other areas could help alleviate the focus on taxing the oil and gas industry in the future.

“The problem with this state is that we haven’t done a good job at diversifying our economy in the past couple of years,” Taylor said. “On the 5 percent [GPT], it doesn’t shut industry down, but we have to be cautious about not creating an unstable business environment.”

Taylor said he supported the revenue package because he believes it will provide a concrete first step forward for education funding. He said future legislative sessions will offer other opportunities to deliver even more revenue for Oklahoma’s education sector.

“I feel like this is a pretty reasonable package for teachers overall,” Taylor said. “I just don’t think it’s realistic to deliver $1.4 billion in one budget cycle. I don’t know if we can make everyone happy (…) and that’s the hardest part of this job.”