May 20--In a dramatic late night session, the state House of Representatives on Thursday voted to place a $12.5 million annual cap on rebates that can be claimed on production from "economically at-risk" oil and natural gas wells.
House Speaker Jeff Hickman had pulled the bill back from consideration earlier Thursday after members passed an amendment to cap the rebates at $25 million a year rather than abolish them as originally proposed.
Hickman told House members that the rebate for low producing wells was originally projected to cost the state $132 million next fiscal year.
The $12.5 million cap, negotiated with industry officials, would help eliminate part of a $1.3 billion budget gap and give lawmakers about $120 million more to fund education and other state government operations.
In addition to establishing a cap, the bill that was passed would limit rebate eligibility to wells that produce an average volume of 10 barrels of oil a day or less, Hickman said.
Earlier in the day, Hickman had pulled Senate Bill 1577 from the House floor after state Rep. Pat Ownbey, R-Ardmore, pushed through an amendment favored by the Oklahoma Independent Petroleum Association that would have capped rebates to be paid out by the state at $25 million a year.
The amended bill still must be approved by the state Senate before it can be sent to the governor for her consideration.
Earlier Thursday, Hickman, R-Fairview, told House members that he believed the rebate was no longer needed.
The "credit was put in place to incentivize production to continue on leases that weren't producing a lot of oil at a time when we needed oil," Hickman said. "Obviously, we're in a situation now where too much oil is having a dramatic impact on our economy and our state budget, and so this would eliminate that credit."
Ownbey argued that the rebates are necessary to help some small oil producers stay in business.
"Today we are making a decision on whether or not to eliminate ... the very tax rebate that keeps many of these small oil producers whole during these very, very tough economic times," he said.
"The very reason Oklahoma is suffering economically is because oil prices are so low," Ownbey said. "We are an energy state and those oil prices are way down ... I think we have to be careful we don't ... take so many of these tax credits away that we're shooting ourselves in the foot."
The rebate originally was designed to keep low volume oil and natural gas wells from being plugged because they had become unprofitable. As recently as 2013, the rebate only cost the state $10.7 million.
The downturn in oil prices has prompted operators of much higher volume wells to start claiming the rebates, pushing the anticipated cost to the state to $132 million for the upcoming fiscal year at a time when the state is facing major cuts in state services. The cap would dramatically reduce the amount of the rebates.
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