"The Emperor's New Clothes" is a short story written by Danish author Hans Christian Andersen about two weavers who promise a vain emperor a new suit of clothes sewn from a fabric that they say is invisible to those who are unfit for their positions, hopelessly stupid, or otherwise incompetent. The emperor's ministers cannot see the clothes themselves but pretend that they can for fear of appearing unfit for their positions, and the emperor does the same.
When the emperor parades before his subjects in his new clothes, no one dares to say they don't see any suit of clothes on him, for fear that they also will be seen as hopelessly stupid. Attempts to mislead the public are not limited to fables and literary morals.
For 43 years Oklahoma’s gross production tax (GPT) on oil and natural gas had been fixed at 7%. In 1994, during the experimental era of horizontally drilled wells, the Legislature enacted a temporary tax break to set the rate at 1% for horizontal wells. In 2014 the 1% rate became 2%, which was still well below the national average for petroleum-producing states.
That tax break was extended several times as horizontal drilling matured from an exotic and expensive technology to a routine practice in approximately three-quarters of the wells drilled in Oklahoma. (Over the last four years, the percentage of horizontally drilled wells in Oklahoma has grown from 72% in 2013 to 81% during the first 10 months of 2016, Oklahoma Corporation Commission records reflect.)
That fact, coupled with other technological advances such as 3-D seismology, has been met with amazing success – Continental Resources has drilled no “dry hole” since 2014, according to its United States Securities and Exchange Commission Form 10-K filing.
That same SEC filing shows that Continental’s production cost in Oklahoma ($1.00 to $1.13 per barrel of oil equivalent) is less than 25% of its production cost in North Dakota ($4.59), even before North Dakota’s 10% gross production tax is taken into account.
Oklahoma’s lucrative tax breaks to the industry cost upwards of $300 million per year. It would seem, therefore, that Oklahoma’s generosity would guarantee that the industry would spend its operations budget here. However, according to page 66 of Continental’s SEC filing, it will increase operations in North Dakota and decrease its operations in Oklahoma in 2017 – formally debunking the fallacy that a low GPT will guarantee economic prosperity for Oklahoma.
The story of the emperor and his new clothes ends when at long last a child in the crowd who is watching the parade and is too young to understand the social pressure of keeping up the pretense blurts out, "But he isn't wearing anything at all!"
That is exactly what the citizens of Oklahoma are feeling as they realize they were tricked into believing that the gross production tax needs to be 2% instead of the historical rate of 7% before GPT was cut to the bone by elected state leaders who were wined, dined and donated to by an industry whose insatiable desire for obscene profits deprives Oklahoma’s children of an education, leaves our roads in a dangerous state of disrepair, and tragically creates recurring fiscal failures that keep educators and public employees at subsistence wages.
(Representative Perryman is a Democrat from Chickasha.)