It’s been a very eventful couple of months since our last issue, and much has happened where public policy is concerned related to the oil and gas industry. So rather than pick a single topic for this piece, I’m going to offer some shorter takes on several important issues:
Texas Railroad Commission Sunset Review and FY 2018–19
Budget If you happen to run into your state Representative or Senator anytime in the near future, take a moment to thank him or her for doing the right thing, at long last, where the Railroad Commission of Texas (RRC) is concerned.
This was the third time since 2011 that the Legislature had taken up the subject of whether or not to renew the RRC and its mission for another 12-year term, or to “sunset” it and assign its responsibilities to other government bodies. Where the 2011 and 2013 Legislatures had failed in this task, the 2017 Legislature finally decided to stop playing games with the Commission by leaving it in a state of limbo, and passed a clean reauthorization of the agency through 2029.
Silly, illogical issues that sidetracked the Sunset processes in 2011 and 2013 — like changing the Commission’s name, transferring its hearing responsibilities elsewhere or reducing the number of Commissioners from three to one — were set aside by the bill’s sponsors. The result was passage by overwhelming votes in both chambers of the Legislature and a quick signing into law by Gov. Greg Abbott. Cue the applause now.
The RRC also received good news on its requests for a significantly beefed-up budget, one that will make it better able to retain key employees by raising salaries, hire more field inspectors and modernize its aging IT systems. In the end, the Legislature agreed to most of the agency’s requests and authorized a budget for FY 2018–19 that is fully 45 percent higher than the current biennium. This more robust budget — which was strongly supported by the industry itself — will make the Commission better able to carry out its mission and properly police the oil and gas industry. The planned upgrades to its IT systems will also make the data the RRC collects more easily accessible to the public.
So again, thank your state Representatives and Senators for doing the right thing where the RRC is concerned. It was long past time, and the actions they took will benefit every Texan.
Meanwhile, in Oklahoma…
Things are not looking so positive for the industry up in Oklahoma, despite the gigantic contributions taxes and royalties collected from oil and gas development make to the state’s budget. Oklahoma’s state government is far more reliant on oil and gas-generated income than Texas and has not had the foresight to create a rainy day fund. Thus, the recent downturn in the industry has created what is becoming an intractable issue in balancing the budget.
So, for the second time in the last three years, the Sooner State’s Legislature resorted to raising taxes on the industry. In 2015, the Legislature raised taxes by eliminating and modifying several incentives that existed under the state’s gross production tax (GPT), and implementing a two-tiered rate under the GPT. Those incentives had been put in place over the previous decade in efforts to attract capital investment to the state.
This year, the Legislature went even further, eliminating the incentives that had remained on the books and raising the GPT rate for a large number of wells. Despite this second large tax increase in just three years, legislative leaders could not commit to industry representatives that they would not be coming back again in 2018 looking for even more taxes on the industry, since projections indicate it will face another large deficit when the Legislature convenes again next January.
While it is perfectly understandable that tax rates and incentive programs related to any industry are going to change from time to time, this constant monkeying around with the GPT is beginning to reduce companies’ ability to properly plan their drilling programs and other business activities in Oklahoma. For companies who allocate huge drilling budgets between projects in multiple states, predictability is a very important factor. These budgets are allocated mainly based on an anticipated rate of return on capital basis, and a constantly shifting tax burden reduces the willingness of companies to commit the millions of dollars necessary in order to explore for oil and gas.
Oklahoma is very fortunate to be the home to the SCOOP and STACK play area, one of the truly world-class oil and gas plays in the United States. It would be a shame if the constantly shifting tax goal posts by the Legislature end up negatively impacting future investments in that resource. Another effort to raise the GPT in 2018 could do just that.
The U.S. Pulls Out of the Paris Climate Accord
The announcement by President Donald Trump on June 1 that he was pulling the United States out of the Paris Climate Accord came as a surprise to many, but it shouldn’t have. The commitments made by executive fiat by former President Barack Obama within the Paris Climate Accord stand in direct opposition to the commitments made by Trump during the 2016 campaign, as well as the energy policy-related actions taken by Trump since assuming office.
During his campaign, Trump made his pledge to pull the U.S. out of Paris a centerpiece of his daily stump speech. At every campaign stop, Trump overtly promised to end U.S. involvement in the agreement, which he regularly referred to as a “terrible deal” made by “stupid” people. Indeed, this was the overarching theme of his entire campaign — that he is a superior negotiator who would be able to negotiate better deals than these for the country.
Any expectation that he would now, after being pressured by his European peers, suddenly decide that Paris is a fine “deal” that the U.S. can now live under seems overly optimistic, to say the least. It would be comparable to Sherlock Holmes, after years of demonizing Professor Moriarty as the worst villain on the face of the earth, suddenly deciding he’s a really cool guy with whom he’d love to have a few beers.
Then there is the reality that, as President, Trump has already issued a series of executive orders and signed Congressional Review Act resolutions that either reverse outright or order the EPA and Department of the Interior to rescind or rewrite a raft of Obama-era regulations and executive decisions for which the commitments in the Paris Climate Accord serve as the main underpinnings. I detailed those actions for SHALE Magazine readers in the previous issue.
Regardless of what one thinks about the wisdom of the commitments Obama unilaterally made on behalf of 330 million Americans related to the Paris Climate Accord, only blind optimism could have led anyone to be surprised by President Trump’s decision. Given his previous promises and actions, it was his only logical move.
About the author: David Blackmon is Associate Editor for Oil and Gas for SHALE Magazine. He previously spent 37 years in the oil and natural gas industry in a variety of roles, the last 22 years engaged in public policy issues at the state and national levels. Contact David Blackmon at [email protected]