The North Dakota Senate recently passed a bill aimed at creating tax incentives for oil drilling outside of the state’s primary production areas, such as the Bakken and Three Forks formations. The bill, which was amended 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, is designed to encourage development in other geologic formations. The first 300,000 barrels of oil produced outside of the Bakken and Three Forks formations would be taxed at a lower rate of 2%, compared to the typical 5% tax rate.
The bill also includes a provision for a study of low-producing wells, known as stripper wells, which become exempt from the extraction tax after producing no more than 35 barrels per day for 12 consecutive months. The study will examine the fiscal impact of the exemption and alternative tax policies for stripper wells. Nearly half of all North Dakota oil wells now qualify for the stripper well tax exemption.
The Senate’s changes to the bill will need to be adopted by the House or resolved in a conference committee. The North Dakota Petroleum Council supports the bill, highlighting the state’s potential for oil production in other formations. Lawmakers are considering the long-term implications of allowing wells to be classified as stripper wells indefinitely, even if production increases in the future with enhanced oil recovery methods.
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