Taxation & Economic Impact | Oklahoma Oil & Gas Association

Taxation & Economic Impact

How oil and natural gas production is taxed in Oklahoma:

In 2014, the Legislature passed HB 2562 to establish a new, permanent two-tiered gross production tax (GPT) structure. This new tax structure increased GPT on horizontal wells by 100% and ended more than half of the GPT rebates.  Because of this law, all new wells – vertical or horizontal – are taxed at 2 percent for 36 months and 7 percent thereafter for the life of the well, which is often 30-plus years.

The intent of this law is two-fold: 1) to provide transparency and clarity for all stakeholders in Oklahoma on how the oil and gas industry is being tax; and 2) to incentivize drilling in Oklahoma to support job creation and new economic growth for Oklahoma communities. Oklahoma Oil and Gas Tax Slide

Over the past year and a half, the state has continued to increase the effective GPT rate. By July 2017, the State Legislature had taken action to end the remaining GPT rebates and increased the GPT rate on more than 6,600 legacy wells. This has generated more than $261 million additional tax dollars. As a result, the following are current facts about the GPT rate:

  • Today’s effective GPT rate is 4.4% according to the Oklahoma Tax Commission. In January 2017, the effective GPT rate was 3.2%. This increase in GPT is a result of legislative action to end all GPT incentives, many dating back to the 1990s, for current and future wells. Today, the two-tiered rate is simple and straightforward: 2% for 36 months and then 7% thereafter for the 30-year life of a well.
  • 9 out of 10 wells in Oklahoma are taxed at 7% GPT. The 10% of wells taxed at an initial rate of 2% have created 5,000 new energy jobs in 2017, provided robust economic growth in western Oklahoma, and driven the increase in GPT collections for 11 consecutive months due to new production.

It’s equally important to note that the oil and natural gas industry pays more in taxes in Oklahoma than just the gross production tax. In fact, the gross production tax is only 1/5th of the total $2.55 billion in taxes the oil and natural gas industry paid to the state in FY’15 (see chart). Unlike our neighboring oil producing state, Texas, the oil and natural gas industry also pays corporate and personal income taxes, which outpaced gross production tax collections in FY’15. 

The sum of all the taxes the oil and natural gas industry pays makes it the largest direct revenue source for Oklahoma’s budget. When other Oklahoma industries pay $1 in taxes per employee, the oil and natural gas industry pays $4 in taxes per employee.


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  • The oil and natural gas industry is the largest direct revenue contributor to the state budget.
  • Where other industries in Oklahoma pay $1 in taxes per employee, oil and natural gas pays $4 in taxes per employee.
  • In FY’15, the oil and natural gas industry paid $2.55 billion in state taxes, or 22 percent of all state taxes.
  • The gross production tax (GPT) is 1/5th of the total taxes the oil and natural gas industry pays in Oklahoma.

How Oklahoma’s clear regulatory environment and permanent tax structure helped the state during depressed commodity prices from 2014-2016:

Soon after the state enacted the new two-tiered gross production tax in 2014, the price of oil and natural gas plummeted. The national rig count hit the lowest number in seven decades. In Oklahoma, drilling activity declined by 59 percent, but Oklahoma’s tax structure was a key component as to why our state fared better than others. During the same period of time, Texas’s drilling activity declined by 66 percent, New Mexico’s by 68 percent, Colorado’s by 74 percent, and North Dakota’s by 78 percent.

In 2017, oil and natural gas companies are making a comeback thanks in large part to innovation in drilling practices. Oklahoma has made one of the quickest energy recoveries, aside from Texas, when assessing rig count. As of April 6, 2017, Oklahoma had 121 horizontal rigs running, a 207% increase from April 2016. Other states are experiencing a much slower increase in activity. For example, North Dakota’s rig count is 43 as of April 16, 2017, increasing only by 13 rigs since last year.  With new rigs comes new jobs and new tax revenue streams for the next two to three decades.  

Oklahoma State Treasurer Ken Miller noted in his April 4, 2017, newsletter that the “average decline in gross receipts has slowed and the unemployment rate is shirking as rig counts rise along with business conditions and consumer confidents.”

As of August 2017, State Treasurer Ken Miller has also announced that as a result of increased production, state collections from the gross production tax have increased each month from the year prior for 11 consecutive months.
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  • For 2017, five of the most active drillers in Oklahoma have pledged $5.5 billion in capital investments in Oklahoma. It is estimated, using calculations, that this will support 30,000 energy jobs and 165,000 indirect jobs. It will also generate millions more in new revenue dollars for the state.
  • From January 2017 to August 2017, the oil and natural gas sector created roughly 5,000 Oklahoma jobs.
  • As of August 2017, the state collections from the gross production tax have increased for 11 consecutive months due to an increase in production.
  • In FY’15, the oil and natural gas industry paid an estimated $1.7 billion in royalties to Oklahomans. These earnings help to fund small businesses, agricultural operations, education savings accounts, retirement savings, and more.



Oklahoma energy is driving our state forward!

An independent study released by the State Chamber Research Foundation confirms that the oil and natural gas industry continues to be the key economic driver in the state.

State Chamber Research Foundation – Economic Impact of the Oil & Gas Industry on Oklahoma (2016)

Executive Summary –  Economic Impact of the Oil & Gas Industry on Oklahoma (2016)