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Additional Relief Could Come To Wyoming Oil And Gas

Rig count in Wyoming over the past year
Y Chart

The legislature's Joint Minerals, Business & Economic Development Committee voted in favor of sponsoring a bill they hope will incentivize new oil and gas production in the state.

It would allow producers to receive a six-month severance - or state mineral production - tax exemption on new oil production in Wyoming once prices got to a high enough point.

"We're recognizing that if [the] price is too low, companies are not going to come back anyway. So, we're gonna set it at maybe a break-even to get a company over the hump to choose Wyoming over North Dakota, to choose Wyoming over New Mexico," said Pete Obermueller, president of the Petroleum Association of Wyoming.

The exemption would apply for sour crude oil when the benchmark Western Canadian Select spot price hit $38 per barrel as a 30-day rolling average or for sweet crude oil when the benchmark West Texas Intermediate (WTI) spot hit $45 per barrel as a 30-day rolling average.

Obermueller said oil markets are not currently a bright spot for the state, as they once were. Last August, there were 37 rigs in the state, according to Y Charts. On June 26, the rig count dropped to zero for the first time since 1884, according to Obermueller. It’s now back at one rig, in Sweetwater County.

He said this bill will help with the speed and efficiency of returning jobs and capital to the state. Today, WTI closed at $41.03. WTI pricing has been on the rise since late April after briefly dipping into the negatives.

Obermueller recommendated the committee include natural gas in the bill as well.

"Just a few short months ago, all the discussion during the session was about the dire straits that Wyoming's gas industry is in. Nothing has changed there," Obermueller said.

Members amended the bill to provide a similar exemption to natural gas when the benchmark Henry Hub spot price hit a 30-day rolling average of $3.00 per thousand cubic feet.

Monika Leininger, community organizer with the landowners' group, the Powder River Basin Resource Council, argued the industry has already received plenty of help in recent months.

"We already have existing tax exemptions for stripper wells, shut-in and re-completion wells, flared and vented gas. In my opinion, we should wait and see if these past tax exemptions and the royalty relief pays off for the industry and for the state," she said.

A report from Taxpayers for Common Sense also shows Wyoming has received the most federal royalty relief by lease count and acreage in the nation.

Leininger also argued that an exemption like this simply isn’t effective in sparking production or employment; that it comes down more to accessibility to markets, availability of infrastructure and geology.

Laramie Sen. Chris Rothfuss added he’s also not a fan of the tax exemption approach.

Several other opponents raised concerns about the fiscal impact of a severance tax exemption given the state's major financial concerns.

"Right now, we need the revenue from a rising oil market and now's not the time to diminish that opportunity for the state," said Steph Kessler, program director at the Wyoming Outdoor Council.

She also brought up the fiscal note of another severance tax exemption just passed this year. During the 2020 budget session, Oil and gas tax-new production or HB 243 came with a $12 million impact in fiscal year 2021.

It's not clear how HB 243 would interact with the bill under discussion. As it stands, it would reduce severance taxes for new oil and gas production by two percent under certain price points. For crude oil, that would kick in at $50 per barrel.

Obermueller said the fiscal impact should only be considered high if you think rigs will come back regardless.

"If there's a problem between the time that this bill may be passed and when we go into session this coming winter, well, we can fix it. It's not going to be out there for that long," said Casper Rep. Joe MacGuire. "We need to give them every bit of incentive that we possibly can to save the business that we are going to have here in Wyoming."

The committee directed the Wyoming Department of Revenue to put together rules to handle the program and define the difference between sweet and sour crude oil. The next session is scheduled for January 12 though Gov. Mark Gordon could call a special session at any time.

Have a question about this story? Contact the reporter, Cooper McKim, at cmckim5@uwyo.edu.

Before Wyoming, Cooper McKim has reported for NPR stations in Connecticut, Massachusetts, and South Carolina. He's reported breaking news segments and features for several national NPR news programs. Cooper is the host of the limited podcast series Carbon Valley. Cooper studied Environmental Policy and Music. He's an avid jazz piano player, backpacker, and podcast listener.
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