Tax exemption for oil wells outside North Dakota core areas approved by Senate
A gas flare burns in front of an oil pump jack near Killdeer, North Dakota, on Feb. 1, 2024. (Jeff Beach/North Dakota Monitor)
A bill to create tax incentives for oil drilling outside of North Dakota's primary production areas passed the Senate on Monday, along with a possible study of the rising number of low-producing wells and their tax status.
The Senate Finance and Taxation Committee amended House Bill 1483 to increase the amount of oil that could be produced under the tax break and lengthen the time period that the break would be in effect.
Most of North Dakota's oil comes from the Bakken and Three Forks formations. The bill would encourage development in other geologic formations.
Ron Ness, president of the North Dakota Petroleum Council, previously testified that North Dakota has 10 other formations with oil production potential.
The first 300,000 barrels of oil produced during the first 36 months after a well is completed outside the Bakken and Three Forks formations would be taxed at a lower rate — 2% of the gross value of the oil. The typical oil extraction tax rate is 5%.
North Dakota sees uptick in oil wells that qualify for tax exemption
Rep. Chuck Walen, R-New Town, said the wells would still produce tax revenue in other ways, such as sales taxes.
In addition, the wells would still be subject to the 5% gross production tax, which is paid in lieu of property taxes.
The tax break does not apply to wells within a reservation unless the tribe opts in, under the amended bill.
The bill also says Legislative Management shall consider a study of low-producing wells, known as stripper wells. Low-producing Bakken and Three Forks wells become exempt from the extraction tax after 12 consecutive months of producing no more than 35 barrels per day.
The interim legislative study would examine the fiscal impact of the exemption and alternative tax policies for stripper wells. Some lawmakers have questioned whether it's good tax policy to allow wells to be classified as stripper wells forever, even if their production increases in the future with enhanced oil recovery. Nearly half of all North Dakota oil wells now qualify for the stripper well tax exemption.
The Senate changes will need to be adopted by the House or differences can be resolved in a conference committee.
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