No Income Tax for North Dakota?

January 4, 2015 Elizabeth Alford

In a few short days, the North Dakota legislature heads back into session. Expected to take center stage are several key funding issues recently made more crucial by the continued decline in oil prices

First is an initiative by GOP members that would effectively wipe out the state income tax. A new bill that is expected to be introduced early in the session will reduce the income tax rate to zero. This is a counter to Gov Dalrymple’s proposal for a 10% decrease in personal and corporate income tax that was made in an effort to draw more people to the region. This issue is highly contested since there is great concern over the potential lost revenue due to plummeting oil prices.

North Dakota's state funding is tightly tied to taxes on oil and gas production and was responsible for more than half the state’s revenues for 2013. So as oil prices decline, legislators have reason to be nervous. In addition to expected lower production, there is a quirky law from 2001 that allows tax exemptions when oil hits a certain low price point. Though the formula is a bit complicated, basically if oil stays below $52.58 (2015) for five consecutive months, the percentage of tax decreases, potentially resulting in untold millions in lost revenue.

Reduced tax revenue brought on by low oil prices has already put many services at risk, so reducing state income tax is making many lawmakers nervous.

“Senate Majority Leader Mac Sneider told a teh Jamestown Sun that “I think at a time when we’re seeing warning signs of not wanting our budget to be dependent on the price of a commodity, I think eliminating the income tax is shortsighted. We’ll be focusing on tax relief, but it’ll be on the tax that people are most concerned about, and that’s property tax.”

Another funding issue that ND legislators will be deciding is the way the state divides tax revenues. When Gov. Dalrymple rolled out his proposed budget, it included a change in the state’s oil production tax distribution formula that would shift the way funds are split and allow more money to be funneled back to the county level. Currently local governments receive 25 percent of these funds but this would increase that 60 percent, which would be vitally important to improve local infrastructure (including roads, water plants and housing) that has not caught up with the demand.

Year in Review: Record Production

January 2, 2015 Elizabeth Alford

2014 was one for the record books as exploding production elevated the Bakken region to major-player status amongst the world's energy leaders.

January began as North Dakota set several all-time highs including having over 10,000 producing wells averaging 973,045 b/d and natural gas at 1,086,571 MCF/day.

By June, the NDIC announced it had hit the 1 million b/d in production. This long anticipated goal was slowed a bit by difficult weather in the winter but by the time it happened, the U/S. was positioned as the worlds largest oil producer. Even as oil prices began to decline throughout the fall, production continued to break records and by September, production averaged 1.2 million b/d.

The latest numbers from the NDIC show that at the end of the year, the Bakken and Three Forks regions alone averaged 1,118,010 barrels per day and boasted two more all time high records for producing wells (11,892) and gas (44,317,381 MCF = 1,429,593 MCF/day).

Whether this volume of prodcution can be maintained with current price declines is unclear, but the EIA predicts that drilling will slow for 2015 due the uncertainty.

Read more at dmr.nd.gov

More Budget Cuts for Continental Resources

December 30, 2014 Elizabeth Alford

For the second time in as many months, Continental Resources announces huge adjustments to its 2015 budget in response to plummeting oil prices.

In a press release before Christmas, the energy giant announced the details including plans to slash their 2015 capital expenditures to $2.7 billion. Additional cuts will come as they decrease the number of operated rigs, which they predict to drop from 50 to approximately 31 operated rigs by the end of 2015.

In an interview with Forbes, CEO Harold Hamm explained that the company is taking the necessary precautions to weather this storm and protect bondholders. Seemingly unfazed in his comments, Hamm credits his confidence to his past experience with these types of scenarios.

“Harold Hamm tells Forbes that “It’s all part of our plan. If prices go down, we are going to cut back to save our wealth — which is oil in the ground.” Hamm goes on to say that, “I’ve seen this six or seven times. We have ample liquidity, our total revolver available, no near-term debt, a lean organization with just 1,100 people, production of 200,000 barrels per day, and a low-cost, high-margin operation. We’re going to navigate right through it.”

Read more at Forbes.com

photo credit: david_shankbone cc

Low Oil Prices Offer Uneven Economic Effect

December 28, 2014 Elizabeth Alford

As consumers enjoy the benefits of plunging gasoline prices this holiday season, it is still unclear how cheaper crude will impact the overall health of the U.S. economy.

One Washington think tank has estimated that, though many parts of the country will experience a slight economic stimulus in 2015, the lower oil prices will bring a significant downturn in the economic health of energy dependent states.

Unprecedented production in the United States shale plays have contributed to an increase in worldwide oil supplies, resulting in gasoline prices plummeting to their lowest level in almost five years. This has proven to be an economic boom of sorts to American families who are pocketing an additional $25-$75 per month. An additional perk will come as reduced fuel costs will eventually affect the pricing of consumer goods and services.

“Stephen Brown with Resources for the Future writes that, “The reduction in oil prices provides US consumers with what amounts to an annual increase in disposable income of $350 billion (about 2.0 percent of US GDP) through reduced prices for gasoline, diesel fuel, other petroleum products, and goods and services whose production uses petroleum products. The average US household will see a raw gain that amounts to $2,790 per year.”

The economic picture is not so rosy for everyone. Energy producers and states that are heavily invested in oil production will take a hit in 2015. Some companies have announced they will slash their budgets, with many predicting cuts in their exploration efforts. This will have a ripple effect that will impact local economies and support industries as tax revenues are reduced and layoffs are inevitable.

Download the entire report from rff.com.

North Dakota Proposes New Bakken Waste Rules

December 23, 2014 Elizabeth Alford

On December 12th, the ND Department of Health (DoH) proposed new limits for oil waste disposal that would drastically alter the way the industry does business in the Bakken region. This comes after a study conducted by Argonne National Laboratory concluded that the level of radioactive material (TENORM) found in waste can actually be much higher than current rates and still be safe for oil and landfill workers.

Amounts of radioactivity are measured in units called picocuries, and the new proposal would multiply the amount allowed in waste material by ten times. Landfills choose to accept the higher TENORM material will be required to go through a new permit modification process, which will provide better accountability for the tracking of the radioactive waste.

“Currently, approved landfills can accept waste of up to 5 picocuries per gram, which is approximately equivalent to background radiation. Extremely low standards were established because of a lack of available scientific data at the time,” said Dave Glatt, Environmental Health section chief for the NDDoH. “Our proposed rules are based on the best available science and will allow for the responsible and safe disposal of TENORM generated in North Dakota.”

As with other shale oil industry issues that have potential environmental and health concerns, this change brings mixed emotions from people with competing interests and those who are refuting the science of the report. The ND DoH has scheduled a series of special meetings in January to hear testimony and public comments concerning the proposal.

photo credit: joerodz cc