By Daniel Gilbert
Oklahoma oil man George Kaiser is breaking with fellow energy
executives in asking the state to raise taxes on oil companies,
including his own.
"Oklahoma is in desperate financial circumstances," says the
billionaire philanthropist, who controls closely held
Kaiser-Francis Oil Co.
A higher tax on oil-and-gas production could help the state pay
for education and much needed infrastructure improvements, he says
in a prepared statement. Raising the production tax "doesn't move
the needle in the decision to drill."
Many of Mr. Kaiser's competitors beg to differ.
"He is a social philanthropist and is very interested in growing
the size of government," says Fred Morgan, chief executive of the
State Chamber of Oklahoma.
Several energy companies and the business group say that lower
tax rates for the costliest oil and gas wells are necessary to
continue drilling at a pace that has stimulated economic activity
and created other sources of revenue. The chamber backs a proposal
by Continental Resources Inc., Devon Energy Corp. and Chesapeake
Energy Corp. that would replace an expiring low tax rate with a
slightly higher one.
Energy companies in Oklahoma currently pay a 7% tax on oil and
gas revenue. But to encourage drilling with more costly shale
wells, which burrow down and then turn horizontally, the tax rate
is 1% for the first four years.
Continental, Devon and Chesapeake propose a permanent 2% tax
rate for the first four years of oil and gas production from all
new wells, whether vertical or horizontal. Most new wells are
horizontal.
Mr. Kaiser proposes that the rate for new wells rise to 7% but
says a reasonable compromise would be 3.5% for the first two years
of a well's life.
It is an unusual stance for a energy mogul who rarely makes
public statements. But Mr. Kaiser, a Democrat, often deviates from
oil-patch orthodoxy in the heavily Republican state. While most
energy companies tend to support conservative politicians, about
80% of Mr. Kaiser's $143,900 in national political contributions
since 2010 have gone to Democratic candidates or committees,
according to the nonprofit Center for Responsive Politics. A
spokesman says he mostly donates to Republicans on a state
level.
Mr. Kaiser began speaking out on the Oklahoma tax this month
after learning of his larger rivals' proposal. Legislation is
expected to be introduced this week to replace the current tax,
which expires next year.
Removing the discount for more expensive wells "will definitely
mean fewer wells drilled in the state," says Blu Hulsey,
Continental's vice president of government and regulatory affairs.
Devon and Chesapeake decline to comment.
As U.S. oil and gas production has boomed in recent years with
advances in hydraulic fracturing, states hungry for revenue have
grappled with how much to tax companies without chasing them
away.
North Dakota--now the country's second-largest oil-producer,
after Texas--taxes 11.5% of the value of crude pumped from its
fields.
Pennsylvania, home to the gas-rich Marcellus Shale, is at the
other end of the spectrum. Rather than tax production, the state in
2012 imposed fees on wells. A state agency calculated that the fee
works out to an effective 1.6% tax rate for natural gas, lower than
the 10 other states it examined.
SandRidge Energy Inc. may have the most at stake regarding
Oklahoma's tax. The company drills more horizontal wells in
Oklahoma than any other. SandRidge reported that it paid $32.3
million in companywide production taxes last year, or 1.6% of its
revenue. By contrast, Oasis Petroleum Inc., which is heavily
invested in North Dakota, reported 74% less revenue than SandRidge
but paid triple the production tax. SandRidge declined to
comment.
Some Oklahoma officials, including Finance Secretary Preston
Doerflinger, have questioned the continued need for a lower tax
rate to provide incentives for shale drilling. But Gov. Mary Fallin
is inclined to support the industry's proposal for the 2% tax
increase, a spokesman says.
Horizontal shale wells accounted for 70% of all drilling in the
state last year, according to the Oklahoma Corp. Commission.
Revenue from the production tax fell to $513.6 million last year,
the lowest level in at least a decade, state figures show. Without
the lower tax rate for horizontal wells, the state's haul would
have been $166.4 million higher, according to the Oklahoma Tax
Commission.
Mr. Kaiser says added revenue could help restore funding to
education, a focus of the George Kaiser Family Foundation, which he
endows. A study last year by the Center on Budget and Policy
Priorities found that Oklahoma had cut education spending by 23%
since 2008, more than any other state.
"I am one of the most significantly affected by higher Oklahoma
energy taxes," Mr. Kaiser says. Kaiser-Francis Oil generally
participates in wells drilled by other companies, but Mr. Kaiser
says it still spends "tens of millions of dollars a year" on
horizontal wells.
It is unclear how many energy executives support Mr. Kaiser's
proposal.
Stacy Schusterman, chief executive of Samson Energy Co., doesn't
operate in Oklahoma but says production taxes are a negligible
expense. The assertion that increasing the tax rate by six
percentage points will discourage drilling "stretches all
credibility," she says in a written statement.
Write to Daniel Gilbert at daniel.gilbert@wsj.com
Corrections & Amplifications
The first name of Samson Energy Chief Executive Stacy
Schusterman was incorrectly spelled as Stacey in an earlier version
of this article.
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