Bill seeks to expand North Dakota’s oil footprint with tax breaks

A bill seeks to encourage drilling for oil outside of North Dakota’s highly productive Bakken Formation and take advantage of the Trump administration’s desire for U.S. energy dominance. 

“Drill, baby, drill is real,” Ron Ness, president of the North Dakota Petroleum Council said Tuesday, repeating a Republican mantra for oil and gas development. 

Ness was testifying in support of House Bill 1483, which would expand an oil extraction tax exemption outside the Bakken and Three Forks formations. 

The Bakken has produced more than 5 billion barrels of oil, mostly since 2007, Ness said. But he said North Dakota has 10 other oil production zones that have potential. 

While the Bakken is dominated by large, publicly traded companies, Ness said the tax break would encourage more drilling by smaller operators, or wildcatters, “trying to to find the next big thing.” 

North Dakota has a 5% oil extraction tax and a 5% oil production tax. The law already allows a 2% oil extraction rate for some oil produced outside of the Bakken and Three Forks formations.

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The bill would expand the area of the tax break and increase the amount of oil that would be taxed at the lower rate from 75,000 barrels to 90,000 barrels, though there was some sentiment among the committee that the 90,000 barrel figure should be higher to increase the incentive. The lower tax rate would cut off after 18 months if the production figure is not reached. 

Ness said North Dakota should be trying to attract drilling outside the Bakken to compete with the Permian Basin of Texas and New Mexico, which has been successful in attracting drilling outside of its core production area. 

“We’ve put all of our eggs in this basket of the Bakken,” Ness said. 

The state Tax Department estimated that the bill would cost the state $2.2 million in revenue over the next two fiscal years and just over $2 million in the two years after that. 

North Dakota Department of Mineral Resources Director Nathan Anderson agreed that there should be more activity outside the Bakken. 

“Right now, these wells aren’t getting drilled, so the tax base on these wells is zero,” he said. 

There was no opposition testimony filed or presented to the House Finance and Taxation Committee, which took no action on the bill. 

North Dakota, which ranks third in the nation in oil production, produced an average of nearly 1.2 million barrels of oil per day in November. About 3%, or just over 31,000 barrels per day, came from oil wells outside of the Bakken and Three Forks formations, according to the Department of Mineral Resources.

Ness said the timing is right for these incentives to take advantage of the “Trump effect” with Doug Burgum, North Dakota’s former governor, now leading the Department of the Interior. 

Burgum on Monday signed orders addressing what President Donald Trump declared as a national energy emergency and another calling for a review of all agency actions that could hinder development of domestic energy. 

Rep. Craig Headland, R-Montpelier, sponsored the North Dakota bill, which he said is aimed at “feeding our golden goose.”