Clock Ticks Toward North Dakota Reaping Up To $5.3B Oil Tax Break

The clock is still ticking on a potential $5.3B, 2-year tax break for North Dakota's oil industry after a state-calculated average of February's crude price fell below $52.59 per barrel last month.
The clock is still ticking on a potential $5.3B, 2-year tax break for North Dakota's oil industry after a state-calculated average of February's crude price fell below $52.59 per barrel last month.

Reuters

WILLISTON, N.D., March 3 (Reuters) - The clock is still ticking on a potential $5.3 billion, two-year tax break for North Dakota's oil industry after a state-calculated average of February's crude price fell below $52.59 per barrel last month.

The state waives its 6.5 percent oil extraction tax if the monthly price of benchmark West Texas Intermediate (WTI) crude at the Cushing, Oklahoma, transport hub falls below an inflation-adjusted limit, set at $52.59 per barrel for 2015, for five consecutive months.

For February, the average calculated price was $50.86 per barrel, according to North Dakota Tax Commissioner Ryan Rauschenberger. The average was an increase from the January average of $47.98 per barrel.

The tax break kicks in if the average monthly price is below that $52.59 level for each of the next three months. If it is off even one month, the clock resets. The tax returns if the average price exceeds that level for a subsequent five consecutive months.

The countdown, which has officially entered its second month out of a possible five, holds the promise of crucial financial incentive for oil producers and their contractors in the No. 2 oil-producing U.S. state as they grapple with a roughly 50 percent drop in crude prices since last summer.

Indeed, many North Dakota energy companies have sharply scaled back drilling and hydraulic fracking. A tax break could encourage activity to pick back up in June, even if oil prices do not rebound. North Dakota legislators designed the tax waiver in 1987 specifically with that very goal in mind.

Rauschenberger estimates North Dakota will take in $2.9 billion in oil taxes in the next two years without the oil extraction tax. With the tax, the projection is $8.2 billion.

(Editing by Grant McCool)

Copyright 2017 Thomson Reuters. Click for Restrictions.

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