North Dakota to lose $4.3bn in oil taxes

OREANDA-NEWS. March 13, 2015. Tax breaks that accompany low oil prices will take a huge bite out of North Dakota's expected oil tax revenues this year, cutting expected revenues from \\$8.3bn to \\$4bn.

North Dakota offers tax breaks when oil prices are low. One tax break, cutting the oil extraction tax from 6.5pc to 2pc, has already gone into effect. The larger tax break kicks in when prices average below \\$55.09/bl for five consecutive months. It eliminates the oil extraction tax for all new wells and wells within 24 months of production.

Producers are likely waiting for the next, bigger tax break to go into effect in June, drilling wells but not completing them, director of the Department of Mineral Resources (DMR) Lynn Helms said. An estimated 825 wells were waiting on completion in January, an increase of 75.

"Companies are making the \\$4mn investment to drill the wells but holding off on the \\$4mn-5mn investment for the completion until they can see a little better oil prices, until they can see what the taxes are going to be, so they're just holding off more and more and more," Helms said.

North Dakota production fell by 3pc in January to 1.19mn b/d. Helms attributed the drop to low prices, bad weather and producers waiting on the tax break. The state's rig count fell by 21 to 160. Today's rig count is 111, the lowest seen since April 2010. North Dakota is the second-largest producer of oil in the country and home to the prolific Bakken shale.

Helms sees the "bottom" for the rig count at around 100, and said production could potentially jump by 75,000-100,000 b/d in June as the larger tax trigger kicks in. He expects North Dakota output to stay around the 1.2mn b/d level despite the recent pullback.

An estimated 58pc of crude left North Dakota by rail in January, while 31pc left by pipe.