Last week, after I assume several consultations with our energy industry overlords and their mercenaries at the state capitol, The Oklahoman released an editorial response to that great Reuters article that made the rounds a few weeks ago.
Remember that one? I hope so. It chronicles how Oklahoma lawmakers rolled out extremely generous tax rates and subsidies to oil and natural gas companies all while cutting hundred of millions of dollars from public education and other essential services. If you haven't read it yet, do it now. If you have, read it again.
So, what did the yes-men on The Oklahoman Editorial Board (a wise group of individuals who endorsed Janet Barresi for State School Superintendent twice) think about the piece? They chalked the whole thing up to revisionist history.
Via The Oklahoman:
AMAZON Prime's TV offerings include the series, “The Man in the High Castle,” set in a world where the Axis powers won World War II. Such alternative histories may make for good entertainment, but they're bad journalism. A case in point is a recent Reuters article suggesting Oklahoma schools would be flush with cash if only horizontal drilling had been taxed more aggressively in the past.
Really? "The Man in the High Castle?" First of all, are they sure that's not the one about Larry Nichols ruling his kingdom from the top of Devon Tower. Second, is The Oklahoman really starting an editorial with a reference to an Amazon Prime TV series? I bet they wanted to begin with a quote from The Martian, but then realized at the last second they did that when arguing energy companies should not be held liable for causing man-made earthquakes.
The editorial continues:
This analysis, titled “When the oil boom went bust, Oklahoma protected drillers and squeezed schools,” is based on flawed assumptions, faulty or even bogus data and magical thinking.
Yep, the article released by an international news service with no stake in the game is built on "flawed assumptions, bogus data and magical thinking." How does The Oklahoman follow this bold accusation? With their own flawed assumptions, bogus data and magical thinking...
For years, Oklahoma levied a 1 percent gross production tax on the first four years of production from horizontal wells. That rate was originally enacted to encourage horizontal drilling. The incentive was set to expire, and the rate would have surged to 7 percent.
In 2014, state lawmakers voted to instead raise the rate to 2 percent for the first three years of production, and then tax production at 7 percent thereafter.
When you get a chance, read this propaganda put forth by the Oklahoman in 2014. It was published while the oil overloads were in the middle of a PR charm offensive and graciously offering to increase their production tax by 1%. Friendly reminder, the lemmings in our trusted legislature, with the guidance and help from our governor, did exactly what the industry wanted. There was no negotiation. Nobody spoke up and said "Hey, should we really let the industry set their own tax rate?" They just agreed with what the people who fund their campaigns asked for, and that was that.
By the way, never send an Oklahoma politician to David Stanley to buy a car for you. They'll pay the sticker price, get the extended warranty, and let the dealer keep the rebate. They'll also let Slick Rick the finance manager set a fair interest rate for the loan that's free of gimmicks or fees, because you know, car dealers like David Stanley want what's best for everyone. They're not greedy or selfish at all.
Reuters contends the state would have received an additional $470 million in 2015 had the rate been set at 7 percent. Given that the state now faces a $1.3 billion shortfall, that amount would not have prevented budget cuts this year. And there's good reason to question that estimate, since it apparently assumes every horizontal well drilled in 2015 at the lower tax rate would have been drilled at a much higher tax rate.
That's unlikely. While other states impose higher rates on energy production (North Dakota has an 11.5 percent rate), wells in those states are also more productive..
Wells in North Dakota can produce up to 4,000 barrels a day. In Texas, a good well produces up to 1,500 barrels a day. In Oklahoma, the figure is closer to 400 barrels. The return on wells in other states has been double and triple the amount reaped from an Oklahoma well.
Reuters breathlessly reports that North Dakota and Texas “saw big increases in revenue” from energy production, far more than Oklahoma, blaming Oklahoma's tax rate. Yet if North Dakota wells produce 10 times what Oklahoma wells produce, one would expect that state to generate far more money regardless of tax rates.
Just as important, had Oklahoma imposed the same tax as North Dakota, there would have been fewer wells drilled in Oklahoma — because the profit potential is far lower. It's that simple.
And while other energy states might have higher gross production rates, many offer other breaks to producers that have an offsetting effect.
The news agency ignores those facts and pretends operational costs (including taxes) and potential profits have no bearing on business decisions like drilling. That's clearly a bogus assumption, and it undermines any claims of an Oklahoma revenue bonanza if only the state hiked horizontal drilling taxes by 600 percent.
Once again, I love how The Oklahoman "breathlessly" criticizes Reuters for making "bogus assumptions" and then spends half an editorial making their own wildly bogus assumptions. The Oklahoman's argument is nothing but lip service for the industry. I don't think anyone knows with 100% accuracy how much more the state would earn if we had a fair production tax, but it couldn't be less than what we bring in now.
Also, do you really think Devon Energy, Continental Resources and all their pals are going to leave that profitable oil and gas in the ground if we raised production taxes to something like 4% or 5% or even 7%? As long as oil is priced over $60 a barrel, I doubt they really give a fuck. They're just greedy barons playing the fear card to get the best deal possible. If we had lawmakers with guts, they'd call the industry on its bluff. The one thing history has taught us is that whenever and wherever there is oil and natural gas in the ground, there's always going to be an energy company trying to get it.
Here's the final bit of the editorial:
Reuter's analysis of school funding in Oklahoma is similarly flawed. The article refers to “Oklahoma's $3 billion education budget.” In reality, Oklahoma's total budget for K-12 schools, from all sources, totaled $8.6 billion in 2015, according to the Office of Management and Enterprise Services. And that was an increase of $1.5 billion since 2008.
Many claims of multi-year school funding “cuts” are based not on actual reductions, but on slower rates of growth than what advocates prefer.
Reassessment of tax policy can be worthwhile. But it should be based on fact, not fantasy or revisionist history.
I looked into the numbers mentioned above. If you combine state and federal funding, the $3 billion number seems accurate. The "flawed analysis" comes with The Oklahoman's $8.6-billion number. I talked to several high-ranking Ogle Moles and they don't know exactly how that figure was conjured up. More than likely, it's a combination of state, federal, district, local, county funding, as well as bonds and other revenue sources, twisted together to make the number as large and daunting as possible. Even then, it still seems high when compared past budgets:
Either way, the $8.6-dollar number is an irrelevant point. The Reuters article was about state budget cuts to education and how our state's generous tax policy for energy companies contributed to them. "In reality," The Oklahoman is simply using its pulpit to trick readers into thinking there's something wrong with Reuters data and credibility, that our education system has plenty of money, and that oil and gas companies are taxed at a fair rate.
Now that's what I call revisionist history.
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* Update: The Ogle Mole Network strikes again. Here's how the Oklahoman came up with the $8.3-billion:
That's nice and everything, but once again, what's the point? It's irrelevant info that proves a point that doesn't technically exist. The Reuters article outlined how Oklahoma's energy tax policy helped contribute to the state budget crisis, and a consequent decrease in education funding. Is The Oklahoman trying to justify the cuts to education? Are they implying school districts should still have enough money to work with? It wouldn't surprise me. Another friendly reminder, they did endorse Janet Barresi twice.
