BISMARCK, N.D. (AP) — Unless oil prices increase dramatically in the remaining days of October, North Dakota’s treasury won’t be banking the benefits of a tax increase on drillers that has bumped state tax collections by $120 million since June, the state tax commissioner said Monday.
The increase in state oil tax collections was possible because of a state law that adjusts North Dakota’s oil extraction tax when the three-month average price of a barrel of oil went above a specified “trigger” price of $94.69. Oil prices have fallen well below the benchmark in recent weeks, and will almost certainly wipe the increased tax off the books on Nov. 1, North Dakota Tax Commissioner Brian Kroshus said.
“Unless there is a significant geopolitical event or supply disruption of some sort, it will revert back,” Kroshus said.
The monthly averages are figured using West Texas Intermediate prices, the U.S. benchmark set at Cushing, Oklahoma.
WTI crude was fetching below $85 a barrel Monday morning, and the average has been below the price trigger since August.
Oil prices would have averaged above $110 a barrel for the remainder of October to keep the trigger in place, Kroshus said.
North Dakota has two primary taxes on oil production — a production tax and an extraction tax, the latter of which was part of an initiated measure voters approved in 1980.
The current trigger is part of that 2015 legislation that abolished some price-based incentives for the oil industry in exchange for a lower oil tax rate — from 11.5% to 10%. But the bill also raised the total oil tax to 11% — 5% production and 6% extraction — if oil prices rise above the trigger price for three consecutive months, as it did earlier in the year.
The trigger affects only the extraction tax.
Oil prices are a key contributor to the wealth of North Dakota, which is the No. 3 oil producer behind Texas and New Mexico.
Even without the extra revenue from the price trigger, North Dakota’s oil tax collections were already running well ahead of projections. Lawmakers last year assumed oil prices would be $50 a barrel when they crafted the present two-year, $17 billion budget.
According to the U.S. Department of Energy’s information administration, WTI oil prices have only held at $95 or more a barrel for three or more consecutive months five previous times since 2008.