Oil Extraction Tax Cut Proposal - KXNet - Bismarck/Minot/Williston/Dickinson

Oil Extraction Tax Cut Proposal

While North Dakota is the second top oil producer in the nation, the state has the fourth highest oil tax in the country.

Oil officials say the tax structure is what could hurt the state's production.

Donnell Preskey has more on a plan to lower and restructure the oil extraction tax.

"My number one intent is to offer stability to the oil industry," says Senator Dwight Cook of Mandan.

Senator Cook saw the oil bust of the 80's. So did many in this room.

But he says that boom bust cycle could be leveled out by closing some loopholes for the oil industry in exchange for lower taxes.

President of the North Dakota Petroleum Council, Ron Ness, says the state tax policy has been pieced together since 1981. "When measure 6 passed in 1980, 53% of the drilling rigs left ND within 3 months. Tax policy does matter," says Ness.

Lowering the oil extraction tax has been pitched before.

The issue brought oil giant Harold Hamm to the 2011 North Dakota Legislative Session.

While the timing wasn't right last session, Ness says lawmakers need to act to stay competitive.

"How are you going to hedge the Bakken. What producers want is they want a fair competitive tax rate they can plug into their core Bakken activities for the long term. There is going to be competition. The competition is more real today than ever before," says Ness.

The bill also gives an incentive to oil companies drilling in the fringe areas.

A similar incentive was passed in 2007 for exploring in the Bakken.

Ness says that move had a significant impact.

"Mountrail Co was extremely successful but operators across the Bakken had failure after failure. There was an encouragement look at what ND is doing. They kept pouring money in and eventually cracked the code. And look where we are now," says Ness.

If passed, the lower tax rates don't go into effect until 2017 for NEW production.

Continental Resources would like an earlier date or to include all production.

Blu Hulsey with Continental Resources says, "this is an industry that goes where the capital is wanted. Part of that is tax policy."

Education and public worker groups are opposing the plan, saying it could impact funding for schools and employees.