Taxation & Economic Impact | Oklahoma Oil & Gas Association

Taxation & Economic Impact

How the oil and natural gas industry 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 placed a new sunset on all oil and gas rebates. More than half of those rebates sunset in 2015 with the rest slated to sunset in 2020. 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

This law is working! In January and February of 2017, the oil and natural gas industry created roughly 2,500 jobs. In areas of Western Oklahoma, were drilling activity is at its height, the unemployment rate has declined by 2 percent.

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. 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.


  • The gross production tax is 1/5th of the total taxes the Screen Shot 2017-04-06 at 1.41.42 PMoil and natural gas industry pays in Oklahoma.
  • The oil and natural gas industry is the largest direct revenue contributor to the state budget.
  • When 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.


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, 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 a rig counts rise along with business conditions and consumer confidents.”

He went into more depth on taxation, stating: “Gross production taxes on oil and natural gas generated $47.9 million during the month [of March], an increase of $24.2 million, or 102.2 percent, from last March. Compared to February reports, gross production collections are up by $10 million, or 26.3 percent, over the month.”Screen Shot 2017-04-06 at 2.03.42 PM


  • 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 jobs and 165,000 indirect jobs. It will also generate millions more in new revenue dollars for the state.
  • In January and February of 2017, the oil and natural gas sector created more than 2,500 Oklahoma jobs.
  • In March 2017, the gross production tax on oil and natural gas generated a 102.2 percent increase over last year’s March collections.
  • 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)


Click here to contact your legislator now to prevent a tax increase!