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Lawmaker proposes extending oil tax trigger

BISMARCK --Lawmakers and oil industry officials rose Wednesday to lend support for a bill that would extend a tax incentive for industry with an amendment meant to offset the impacts of soft oil prices.

BISMARCK --Lawmakers and oil industry officials rose Wednesday to lend support for a bill that would extend a tax incentive for industry with an amendment meant to offset the impacts of soft oil prices.

“It’s probably the best time to be doing it. We want the industry to keep working,” said Rep. Glen Froseth, R-Kenmare, the bill's prime sponsor.

Members of the House Finance and Taxation Committee received unanimous favorable testimony for House Bill 1437, which would extend what is known as the small oil tax trigger through June 30, 2019. The current tax trigger took effect at the beginning of this month and is set to expire July 1.

The small oil tax trigger kicks in if the price of oil averages below $57.50 per barrel for a month and takes effect on the first day of the following month. It impacts wells completed after the trigger kicks in.

The extraction tax would drop to 2 percent on the first 75,000 barrels of oil produced or first $4.5 million of gross value during the first 18 months after completion.

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A fiscal note for HB1437 estimates that an extension of the small trigger would cause a revenue loss of $280 million during the 2015-17 biennium.

There were 140 active drilling rigs operating in North Dakota as of Wednesday, a decline of nearly 50 since fall.

Froseth’s amendment adds language that would keep the trigger from kicking in under certain circumstances.

The amendment states that if the state’s larger oil tax trigger is enacted, the small one couldn’t be in place at the same time.

The oil triggers are based on the West Texas International benchmark price used in the U.S. determined in Cushing,Okla. The price of WTI was hovering Wednesday at about $50 per barrel.

If the price of oil averages below a set trigger price for a five-month period, the large oil trigger takes effect and the state’s 6.5 percent oil extraction tax is forgiven. This could result in the loss of billions in revenue over the course of a biennium.

The current number for the large trigger is $52.59; it is recalculated annually to account for inflation. All new wells drilled while the large trigger is in place would be exempt for 24 months.

The amendment says that once the large trigger is off, the small trigger couldn’t come on for a minimum of one year. That period of time would allow the state some time to recover, according to John Walstad, legal division director for Legislative Council.

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Sen. Brad Bekkedahl, R-Williston, agreed with Froseth on the importance of the tax trigger. He said with Williston’s workforce consisting of more than 60 percent oil and gas industry workers keeping the activity going through the good times and bad was critical to hub cities’ economies.

“This is an issue of strength in our local economy,” Bekkedahl said. “I see this as a backstop.”

North Dakota Petroleum Council president Ron Ness supported the bill, saying it maintains the status quo and provides consistency for operators.

“The tax structure is what it is. Essentially, we’re all in this together,” Ness said.

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