Idaho’s effective tax rate on natural gas and oil production is less than half the average when compared with eight other producing states, according to a tax-comparison study released Thursday.
The study made public at the Idaho Oil and Gas Conservation Commission meeting found Idaho’s rate at 4 percent compared with the 9.5 percent average of the eight other states.
The only state with a lower rate than Idaho was Oklahoma at 3.2 percent. Wyoming had the highest rate at 13.4 percent.
County commissioners and state lawmakers in southwest Idaho where natural gas production is taking place or is likely to occur asked for the $37,000 study carried out by a North Dakota consulting company. The consulting company says it made the comparisons based on severance, production and property taxes.
“I think we have a new industry in the state of Idaho, and we have to be careful how we look at the tax rate,” said Chris Beck, the commission’s chairman. “Do we want to encourage more oil and gas exploration and development in the state of Idaho and how would a change in the tax rate affect that? So I think we need to be careful. Certainly it would indicate that we need maybe increase it, but I think we have to be careful given the maturity of our industry.”
Idaho has a long history of natural gas and oil exploration, but it has only been in recent years that advanced technology that can map underground formations has given geologists three-dimensional views and narrowed search areas.
In southwest Idaho, Texas-based Alta Mesa has eight producing wells. County commissions in Payette County, where production is taking place, and Washington County, where Alta Mesa has signed leases, asked for the study.
Natural gas and oil production “can bring in huge amounts of money, so we need to be aware of what’s going on in the industry,” said Kirk Chandler, chairman of the Washington County commission. “They have some seismic data that shows there’s good gas in Washington County.”
State lawmakers from the region who asked for the comparison study are Sen. Abby Lee, R-Fruitland, and Reps. Judy Boyle, R-Midvale, and Ryan Kirby, R-New Plymouth.
Oil and Gas Conservation Commission member Jim Classen said some of the problem he saw with the low effective tax rate was caused by the one-eighth royalty many people with mineral rights agree to or end up with in the integration process, which includes non-willing participants when a majority of mineral interest owners want to take part.
Classen, an exploration geologist, said if he had mineral rights in the area he wouldn’t agree to a one-eighth interest. He would instead rely on his expertise and take a riskier option provided in state law that can pay more but puts a mineral interest owner’s own money at risk.
“In a wildcat area, one-eighth royalty is appropriate,” he said. “If you’re in an area where commercial production has been found in general, you could consider a higher royalty.”
He noted Alta Mesa appears to have reached commercial production in some areas. “There seems to be a sweet-spot area where they have a high rate of success,” he said.