Higher N.D. oil tax not likely to dampen production

Higher N.D. oil tax not likely to dampen production

An oil tax increase this summer is unlikely to slow drilling in western North Dakota’s promising Bakken oil shale, which is leading the state toward an oil production record, industry officials say.

Prices that have soared above $120 a barrel will make the tax increase easier to tolerate, said Jeff Herman, of Bismarck, a regional land manager for Petro-Hunt LLC of Dallas.

‘‘With the price where it is right now, I don’t think the incentive coming off … is going to have much of an effect,’’ he said.

North Dakota’s Legislature approved a temporary tax break last year to encourage production in the western Bakken formation, which the U.S. Geological Survey estimates could produce 4.3 billion barrels of oil using current technology.

The legislation cut the state’s tax rate for newly drilled Bakken wells from 11.5 percent to 7 percent. The incentive took effect July 1, 2007. It expires June 30, when the tax will be restored to 11.5 percent of the oil’s value.

The lower tax rate applied to the first 75,000 barrels of oil from a newly drilled Bakken well. If a well does not reach that production benchmark, its 7 percent tax rate may be extended until Dec. 31.

At the time the temporary cut was approved in April 2007, oil prices were in the low $60s, and the Bakken’s most successful wells in Mountrail and Dunn counties had not yet been established. The cost of drilling Bakken wells, which often exceeded $5 million, was a deterrent to exploration, industry spokesmen say.

‘‘At the time, things were vastly different than they are now,’’ said Ron Ness, president of the North Dakota Petroleum Council. ‘‘There was some limited success. The economics of the Bakken just weren’t working at that point.’’

North Dakota’s peak oil production was almost 148,000 barrels a day in 1984. That record should be surpassed in the next few months, said Lynn Helms, the director of the Department of Mineral Resources.

The state’s oil production last July was about 123,000 barrels a day, with an average of 41 drilling rigs working, according to state Department of Mineral Resources data.

Daily production rose to almost 144,000 barrels in March, the most recent month for which figures are available. On Friday, 71 drilling rigs were working, Helms said.

Helms and Herman said last year’s tax cut helped coax oil companies to continue drilling when the Bakken looked less promising.

‘‘The Bakken was kind of on shaky ground then,’’ Herman said. ‘‘That incentive definitely helped people stay in it … and we started finding some success out there.’’

Robert Harms, president of the Northern Alliance of Independent Producers, which represents oil companies in North Dakota, South Dakota and Montana, said he hopes the Legislature will renew the lower tax rate next year and consider raising the number of barrels to which it applies.

‘‘People get the impression that all of these Bakken wells are successful,’’ Harms said. ‘‘But companies are still struggling on a good number of these wells … and they keep a close eye on what the taxes are.’’


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