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Bryan Horwath, Forum News Service, Published September 27 2013

Oil exec: Cut extraction tax by more than half

DICKINSON, N.D. – The vice president of corporate and government relations for Whiting Petroleum said Thursday that the oil extraction and production tax in North Dakota should be slashed by more than 50 percent.

Speaking at the annual North Dakota Association of Oil and Gas Producing Counties meeting in Dickinson, Jack Eckstrom said the state’s current combined extraction and production tax rate of 11.5 percent could eventually drive petroleum companies out of North Dakota in favor of states with lower tax rates.

“There is competition that (North Dakota) is going to face, and it’s starting right now,” Eckstrom said during a presentation with several other oil and gas industry executives. “We have a fairly substantial development going on in Colorado. Our boss said (Wednesday) on a tour with the investment community that we might ramp that up to as many as 30 rigs, which is a lot of rigs for northeast Colorado. Part of the problem that you all have here is that you have a very high severance tax.”

Eckstrom – who noted that Whiting is set to spend

$1.3 billion in North Dakota this year – said the Bakken figures to be quite busy for several years to come, but that tax rates could eventually lead to more exploration operations being moved to places like Colorado or the Eagle Ford play in Texas.

“The tax rate down in Colorado is 5 percent and that’s a big differential,” Eckstrom said. “Is that going to matter now? I don’t think so. Is it going to matter in two years or three years? Probably not, but down the road, if that severance tax that you have does not find a creative way to be fixed, you will face more competition from the Eagle Ford and other plays.”

Eckstrom said Whiting has three unnamed “stealth plays” that he referred to as “highly prospective” and that are all outside North Dakota.

“I’m not saying North Dakota is bad. North Dakota is great,” Eckstrom said. “I’m just raising a warning flag that the money you’re getting in severance tax now, in the full flush and blush of this boom, is in danger down the road because of competition from states that have lower tax rates. You must compete on that level.”

When asked directly, Eckstrom said he would favor the current tax of 11.5 percent in the Peace Garden State be slashed by more than half.

“I would look at every other state and model myself after the median,” Eckstrom said. “This 11.5 percent is really an outlier. It works fine now, but down the road, it is going to be a problem. I’d say the tax should be somewhere around 5 percent.”