The Wyoming Oil and Gas Conservation Commission announced Tuesday it will not require producers to pay the state conservation tax for the next six months in response to depressed market conditions.
The governor and state commissioners voted unanimously during a special meeting held Tuesday to reduce the assessed value of the conservation tax to zero. In other words, the commission will not charge oil and gas producers the conservation tax for six months beginning Wednesday.
The conservation tax is now set at .0005, or five-tenths, of a mill. A mill levy is equivalent to the number of dollars an oil and gas producer must pay for every $1,000 of assessed value of production.
Funds collected from the tax go toward the Oil and Gas Conservation Commission‘s budget. Wyoming statute allows the commission to “reduce or increase the amount as the expenses chargeable may require.”
“The change in the conservation tax will not require the WOGCC to look to other funds,” Kimberly Mazza, a spokeswoman for the commission, told the Star-Tribune.
Filing fees collected from applications to drill, among other charges, take care of all operational costs accrued by the commission, she added. The commissions budget, approved by the Appropriations Committee this year, will remain unchanged and extend from July 2020 until July 2022.
The tax was included in the Wyoming Conservation Act of 1959, but the exact tax rate has fluctuated over the years. In 2002, it reached its peak at .0008 of a mill. The commission’s decision Tuesday marks the first time the conservation tax has been set to zero in its history.
Oil prices have tumbled in response to the spread of COVID-19 caused by the coronavirus and a global price war. Several oil and gas firms have announced workforce and capital expense reductions.
The oil market has never been this volatile, with a glut in supply and a shortage of fuel demand causing “extreme” price fluctuations, according to a Friday report by the Energy Information Administration.
West Texas Intermediate, the U.S. benchmark, hovered at $20.29 a barrel Tuesday. The realized price for oil in Wyoming sits even lower.
“Reducing the conservation tax and providing some reprieve are necessary steps that the WOGCC Commissioners have approved to help in this difficult business environment,” Supervisor Mark Watson said.
The Petroleum Association of Wyoming welcomed the temporary relief.
“While we would much rather be in a climate that does not necessitate the changes implemented today by the Wyoming Oil and Gas Conservation Commission, we appreciate the recognition of the unique circumstances in which we find ourselves and thank the Commissioners for assisting producers,” Ryan McConnaughey, communications director for the association, said in a statement. “The vast majority of producers in Wyoming are small businesses that contribute significantly to our communities. Any efforts to keep these operators in business is good for Wyoming.”
But the Powder River Basin Resource Council, an organization representing landowners, quickly questioned the decision. Executive Director Jill Morrison said she was concerned the loss in funding would compromise outstanding reclamation projects, like plugging orphan wells. Moreover, the group is worried the burden of oil and gas cleanup projects could fall on taxpayers if the state continues to give operators financial breaks.
“This minimal tax is how the WOGCC funds their budget and it is also how the orphan well program and plugging is funded,” Morrison wrote by email. “It is very concerning that the orphan well problem is likely to grow and the WOGCC still has over 2,000 orphan wells to plug right now. This seems irresponsible and misguided.”
The commission taps into the conservation tax fund to pay for its orphan well program in the event an operator’s forfeited bonds are insufficient to cover the costs of clean up, confirmed Mazza, the commission spokeswoman. She noted funding for the orphan well project will not be compromised by the tax reduction, and has been included in the commission’s budget through 2022.
The commission’s decision comes on the heels of another tax relief measure implemented by the state. On Friday, Gov. Mark Gordon signed into law a bill providing reductions in state mineral taxes amid difficult price environments. The tax break would kick in if the 12-month rolling average of oil prices falls below $50 per barrel. For natural gas, the 12-month rolling average would need to be less than $2.95 per thousand cubic feet. In these scenarios, the state’s mineral production tax — know as a severance tax — would be reduced by 2 percent under the new act.