As the state struggled with ways to fill a budget hole last year, the oil and gas industry urged Gov. Mary Fallin to keep a gross production tax increase off the legislative agenda, according to emails obtained by The Frontier.
John Dill, vice president of government and regulatory affairs for Chesapeake Energy Corp., asked Fallin to keep any tax increase for the oil and gas industry out of a call for a second special session to plug an estimated $110 million budget gap.
In an email dated Nov. 18 to Chris Benge, Fallin’s chief of staff, Dill said the industry deserved “some peace and quiet” as it sought to recover from a prolonged depression oil and gas prices.
“As the current energy-driven downturn has shown, taxes on oil and gas are inherently unpredictable and dependent on volatile commodity prices. If the Governor’s goal is to find stable sources of revenue, continuing to increase the State’s dependence on the Gross Production Tax works against her goal,” Dill said in the email. “As we have urged, state leaders should be very careful in continuing to add costs and taxes to the oil and gas fields in Oklahoma. While many of the plays within Oklahoma are good, and some companies have hit some major single-well finds, the state remains a complex place to drill and is in competition for our investment dollars.”
The oil and gas industry has already seen between eight and 10 tax increases over the past few years on including increases to gross production tax, as well as tax increases on some types wells, Dill said in the email.
“The state should seek to deliver some ‘peace and quiet’ to this industry, particularly as signs of a recovery are evident,” he wrote.
Chesapeake Energy laid off 13 percent of its workforce in January — about 400 workers — as part of ongoing efforts to cut costs.
According to an investor presentation from February, Chesapeake had just one drilling rig operating in Oklahoma.
“We’re going to move rigs where the best value is for the corporation,” Frank Patterson, Chesapeake’s executive vice president for exploration and production told analysts during a recent conference call.
In response to Dill, Benge wrote that the governor’s office wanted to “maintain Oklahoma as a place that welcomes capital investment.”
“I have heard similar requests from others in the industry and I do believe we have to weigh those requests seriously,” Benge wrote. “Thanks as well for acknowledging this situation. Today’s volatile political environment along with the elusiveness of finding a solution to basic funding of core services has truly put our leaders between a ‘rock and a hard place.’ Options are consistently bad and terrible.”
In September, the state’s two largest energy trade groups, the Oklahoma Oil and Gas Association and the Oklahoma Independent Petroleum Association, sent a joint letter asking Fallin to reject a plan to raise gross production taxes on the industry.
The letter was first reported by Nondoc, and later also obtained by The Frontier as part of an open records request for emails to Fallin’s office.
“It is a shame that after job creators put their capital to work in Oklahoma, they are then punished,” the letter stated.
The state remains in a quandary over whether to raise gross production taxes to give teachers and state employees raises to avert a strike beginning April 2.
In November, Fallin vetoed much of the 2018 fiscal year budget approved by the Legislature in its initial special session in November after it failed to identify new, long-term sources of revenue.
The governor at first limited her call for a second special session in December to finding a way to plug a budget gap at the Oklahoma Healthcare Authority.
She eventually revised that call in January to include considering an increase to gross production taxes that included raising the the rate on new wells from 2 percent to 4 percent, rather than the state’s historic rate of 7 percent. The plan was backed by the Step Up Oklahoma coalition, which had the support of many in the oil and gas industry.
When the Step Up plan failed to win enough support in the Legislature, Fallin signed a budget bill that included across the board, 2 percent budget cuts for state agencies in February.