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Low oil prices have lawmakers taking look at tax incentives

BISMARCK -- North Dakota Insurance Commissioner Ryan Rauschenberger said state legislators may reconsider extending tax incentives for oil producers if crude prices remain low. "If we end up having a few more months like this, it could raise awar...

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BISMARCK - North Dakota Insurance Commissioner Ryan Rauschenberger said state legislators may reconsider extending tax incentives for oil producers if crude prices remain low.

 

"If we end up having a few more months like this, it could raise awareness and get some analysis done," Rauschenberger said Monday during an announcement that the first in a series of oil extraction tax incentives has been triggered.

 

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HB 1437, which will have its first hearing Wednesday, would extend a 4.5 percent reduction of the oil extraction tax triggered by low crude prices through 2019. Rauschenberger said there is a chance the bill could be amended in committee since state oil revenue projections have been lowered.

 

The trigger, which will affect new wells drilled after Feb. 1, is scheduled to last until June 30, unless it is re-authorized.

 

The trigger goes into effect whenever West Texas Intermediate crude oil stays below an average price of $57.50 for a month.

 

The incentive is for the first 75,000 barrels produced or the first $4.5 million of gross value for the first 18 months after a well is completed. At $45 per barrel, the incentive is equivalent to $152,000 in savings per well drilled.

 

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Rauschenberger said the reduction in extraction tax revenue does not affect county revenue from the gross production tax. The lower price of crude affects state revenue more than the tax incentives, he said.

 

The last time the extraction tax trigger was in effect was when it was introduced in 2009. Prices rose soon after it was implemented, so it is difficult to tell how much effect the trigger will have on drilling, Rauschenberger said.

 

Rauschenberger said he has heard some industry discussion about waiting to drill until the incentive went into place. However, on a $10 million well, it is more costly to wait than to drill, according to Rauschenberger.

 

Rauschenberger said no bills have been introduced yet to address the larger extraction tax trigger that drops the rate to zero percent.

 

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In order for that trigger to kick in, West Texas Intermediate crude must remain below $55.09 for five consecutive months, meaning it could take effect in June.

 

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