By Chad Warmington
As the oil price gradually recovers to a healthier level, Oklahomans can take comfort in knowing that our state will be one of the early beneficiaries of the increased investment from oil and natural gas producers that will inevitably follow.
With the SCOOP and STACK plays ranked among the most economic major play areas in the Lower 48, we can expect industry to begin ramping back up at lower marginal prices than many other parts of the country.
We can see what’s ahead by observing what is happening in the Permian Basin, which straddles the Texas/New Mexico border region in a big way. The Permian Basin has been on a big winning streak as the hottest play in the country in recent weeks, as its rig count growth dominated the latest tally of rigs nationwide and a series of $40,000 per acre acquisition deals have taken place. Latest rig counts showed the basin with more than 200 total active drilling rigs, fully 40% of all the active rigs in the country.
In the last several months, more than $3 billion in new investments have flowed into West Texas and Southeast New Mexico. The rush to make these new major investments indicates a growing sense of optimism among oil and gas producers that the Permian and Delaware basins are attractive for near-term future of oil and gas industry growth opportunity, the areas with the lowest marginal price point.
Oklahoma’s SCOOP and STACK make up the country’s second world-class resource area. As the price for oil continues its upward trajectory, Oklahoma will see the same kind of Permian Basin-type investments in Oklahoma if we are smart about tax policy.
Right now, our state is in a good position to compete for these new investments with our current oil and gas severance tax rates. However, the ongoing advocacy to raise those rates by the Oklahoma Policy Institute and others threatens to diminish our competitiveness. Because the unarguable fact is that higher tax rates will translate to the need for a higher marginal price before the SCOOP and STACK will become sufficiently profitable to once again attract these kinds of major investments.
The SCOOP and STACK are poised to help bring Oklahoma out of its budget hole. Raising taxes on the industry will throw up a roadblock to that effort and is just bad public policy. Let’s keep Oklahoma competitive.
Chad Warmington is president of the Oklahoma Oil & Gas Association