Longer lateral lines, gross production taxes and keeping the state oil and gas industry competitive all while attempting to find revenue sources were the subject of discussion at this year’s Tri State Oil and Gas Convention panel.
The statements were made by the members of the industry speaker’s panel offered each year at the convention held at the Woodward Conference Center.
Present for the panel discussion Thursday were Sen. A.J. Griffin, R-Guthrie, Sen. Bryce Marlatt, R-Woodward, Rep. Mike Sanders, R-Kingfisher and Oklahoma Corporation Commissioner Dana Murphy.
Rep. Casey Murdock, R-Felt and Rep. Carl Newton, R-Cherokee, were scheduled to appear but were absent.
Earlier in the day Lt. Gov. Todd Lamb offered a presentation to convention goers.
Longer lateral drilling
According to Marlatt, the passage of Senate Bill 867, which provided for the allowance of longer lateral lines to help make drilling horizontal wells more profitable for companies in the state, was a win-win for all in the industry. But, he said, the passage of the bill was especially important for the continued support of the overall state’s economy.
The bill was signed by Gov. Mary Fallin at the end of May after the hard-won legislation squeaked by in the House.
It allows production companies who are drilling for oil to extend the length of lateral lines used when drilling horizontal oil wells. And while that may seem simple enough on the face of it, making sure all of the industry interests were considered and represented in the writing of the legislation, was no easy task, Marlatt said.
“It is something that, no matter what we always did, we had the operators who wanted to drill with longer laterals, we had smaller operators who wanted to partake in vertical wells and we also had royalty owners, which this was unfamiliar territory for them,” Marlatt said. “Every time you made even the smallest change in the language, it would peel off either the royalty owners or it would peel off the smaller operators or it would peel off the larger operators.
“But at the end of the day we were able to come up with language that got the royalty owners and operators and the oil and gas association and Oklahoma independent petroleum Association was heavily involved in this Oklahoma Oil and Gas association was heavily involved and the Oklahoma Royalty Owners.”
According to Marlatt, the bill will go a long way to ensuring that the state is still competitive with neighboring states and draw industry here.
“I think it is an historic piece of legislation ….it will allow a lot of development in the state of Oklahoma. It will allow a lot of investment in the state of Oklahoma and to be frank, a lot of our revenue in the state of Oklahoma comes off of the gross production tax.,” Marlatt said.
According to Sanders, who voted in favor of the bill, some of the argument against came from smaller Oklahoma producers who were still interested in drilling vertical wells, who were concerned about longer laterals dipping into formations already tapped by smaller vertical wells.
“But at the end of the day, it passed and I think will be an economic took that will help the state,” Sanders said.
According to Murphy, the bill does offer the state more opportunity but it also means the Corporation Commission has a hefty job in front of it to create regulation that ensures the law works as it has been proposed.
“Well…I think we are going to kind of be the tail that wags the dog on this one,” Murphy said. “The challenges right now, we have to get emergency rules in place and that is going to be very different than the permanent rules. So, we’re going through the process now. We have to be ready to go on this on August the 24th.”
She said Sanders did a good job encapsulating the challenges of protecting the interests of vertical well drillers, who tend to be small, state owned producers and those interest of large operators who also are heavy drivers of the state’s economy.
She also said there are also royalty owners rights to consider in the regulation of the new law.
“There’s so many interests to balance because you have to look at the royalty owners who maybe have had their mineral rights held for years and years and years by a very small, marginal producer who now have the opportunity to have those mineral rights further developed and obtain greater royalties and it’s good for the royalty owner and good for the state,” Murphy said. “So we are going to have to find a way to work through this healthy tension. I do agree with both my colleagues here, I do think there will be necessary tweaks. I think some of the language in the bill is incredibly confusing. There’s terminology put into this bill that we don’t have anything at the Corporation Commission quite like this, so we will be challenged on that.”
She anticipates, though, getting a set of compressed rules ready to go soon, so that companies can begin to take advantage and benefit from the new law.
Energy and filling budget hole
That discussion created a dovetail conversation in an overarching issue that permeates every conversation legislators have with the public – how to fill a gaping revenue hole and keep state agencies afloat.
And of course, oil and energy being roughly 25 percent of the state’s economy, was at the center of that discussion.
“The overall picture of what it is we are trying to do…we want to be able to go in and develop the minerals that we have and create better wealth for the mineral owners,” Marlatt said. “We also want the investment in our state. And a lot of people in the legislature think, ‘Well, we’ve got oil and gas in the state and so they’re going to drill where the oil and gas is.’ and that is not necessarily the fact.
“When you’ve got competitive areas and different plays that are across the country that are more prolific, that have less restrictions on how far you can drill, we need to make sure we are competitive with other states.”
He pointed again, back to the longer laterals, which adds 5,000 feet to a drilling area paints a much more lucrative picture for companies considering Oklahoma – especially with oil still hovering at just below $50 per barrel.
Griffin noted petroleum products, whether they are used in gas and diesel engines or not in the future, are involved in hundreds of other products. She is a supporter of continued effort to explore and develop the minerals of Oklahoma and she seemed to hint that a less cumbersome regulatory process is key to that success.
“One of the conversations we need to always have is to remember that the role of the commission (Corporation Commission) is to protect the health and safety of Oklahoma. It isn’t necessarily to interfere with free market in the development of new technologies. As believers of a free market, we all want to see technologies be produced based on competition and the innovations of the people out there doing the work and our job is to get out of the way,” Griffin said.
The panel also discussed the contentious fights across the aisle with Democrats in the state regarding proposed increases in gross production taxes. It was a subject matter that locked legislators in a partisan battle, which led them nowhere.
Despite numerous offers to meet democrats halfway, Democratic Minority Leader Scott Inman stymied negotiations with Republicans with a stalwart and uncompromising demand for a three percent increase to five percent, Marlatt said.
Cigarette fee tossed out
Even as the legislators talked, their phones were buzzing and dinging because of the news that topped the headlines of state papers that the $1.50 cigarette fee was deemed unconstitutional by the Oklahoma Supreme Court.
The fee was slated to bring in about $250 million toward filling the nearly $900 million revenue hole. The move strips the money primarily from health agencies in the state and likely will ensure that Oklahoma legislators are back in the state capitol for a special session to slog through more negotiations to solve the state’s budget woes, the legislators said on Thursday.
The bill was a change from a House sponsored bill that was a tax on cigarettes and not a fee. All revenue raising bills are required to have their origins in the House. However, when the House tax on cigarette failed to pass the House, the Senate put together SB845, which was dubbed the “Smoking Cessation Fee”.
The measure passed, but was immediately challenged.
“You know I think I am disappointed but I am not completely shocked with the decision,” Sanders said. “We’ve been talking – we as in the House – have been talking about this throughout the summer looking at different scenarios. Right now, when we tried this year and last year, to get the 76 votes (In the House), we had 62 Republicans who were willing to increase the cigarette tax.
“Not to go too political but facts are facts, and I understand those are pesky things to some people, but the Minority Leader, who just happens to be running for governor, was absolutely going to draw the line in the sand and opted not to help. We know for a fact there are many of our friends across the aisle that were willing and would be willing to vote for that tax.”
Sanders is optimistic that Inman, who is in the spotlight because of his run for governor, will work across the aisle in a special session because he “needs a victory somehow.”
“I’m not sure that will happen, I am optimistic,” Sanders said. “I hope our friends across the aisle are willing to put Oklahomans first. I’m hopeful.”
According to Marlatt, Inman is a self-serving individual who sacrificed the good of the state on the alter of partisanship and his own goal to become governor.
“The problem I want to talk about in the legislature is we’ve got people who are not doing what’s best for the state of Oklahoma,” Marlatt said. “We have issues we could resolve…We had a Democrat leader in the House who is more interested in being in front of the camera and behind the microphone than he is in solving the problems of the state of Oklahoma.”