Federal,local taxes slow oil production
Kansas consumers to face effects
by Max Evans Kansan staff writer
Oil imports are up, but dwindling oil production in Kansas is costing the state more than $100 million a year in lost tax revenues.
Increasing risk
Lee Gerhard, director of the Kansas Geological Survey at the University of Kansas, said that federal and local tax changes and lower oil prices had hampered exploration and investment in Kansas.
Before 1980, an investor could deduct all losses from an oil speculation that did not produce, Gerhard said. But changes in federal tax law now exempt such deductions and discourage speculative investment
“There’s no reason to take that risk at today’s prices.” Gerhard said. “There is a one-in-eight chance to get your money back.”
But the problems of the oil industry also result in a loss of state tax revenue.
A severance tax on all oil taken from the ground amounted to $240 million in 1984, $170 million in 1966 and $150 million in 1988. Gerhard said. This does not include various local, county and federal taxes.
"Oil is the second largest revenue producer in the state, and as an industry, probably the most heavily taxed." Gerhard said.
Gerhard said the loss in tax revenue would lead to a shrinkage of the state budget, which would most be felt by the Kansas consumer.
"He's going to see it in income taxes (and) more taxes for overcrowded prisons." Gerhard said. Eventually, the consumer pays for it.
Higher taxes, fewer jobs
But A. Scott Ritchie, president of Ritchie Exploration Inc of Wichita, said the blow to consumers amounted to more than just tax increases.
From 10,000 to 15,000 jobs have been lost because of slack oil production since 1984, and all related facets of this industry have also seen oil production is low, Ritchie said.
University Daily Kansan / Friday, February 17, 1989
"I can't just go out and get someone to put in a road or do work in the field." Ritchie said. "Most of those people said, 'Well it was good while it lasted,' but they've had to get jobs doing something else."
Ritchie agreed that taxation, both federal and local, was a major cause of the decline of Kansas oil production. He said the federal tax reform bill of 1986, coupled with other tax provisions limiting investment promotion and drilling, took all incentive out of the domestic oil industry.
"If you wanted a plan to make our country more dependent on other countries, you couldn't do more than increase the number of the federal tax changes of 1986."
Negative attitudes toward the Kansas oil industry persist in the northeastern part of the state, which does not rely on the oil industry and therefore does not realize the extent of the problem, Ritchie said.
"The attitude seems to be," Tax him. "Don't tax me," Ritchie said. "What else can we do? We can't cut timber, and we can't mine gold."
Such an attitude is shortsighted for a state with few revenue alternatives, he said.
Leftover oil
However, both Ritchie and Gerhard agree on one thing: Kansas still has much oil.
At the peak of production in 1984, Kansas wells delivered more than 209,000 barrels of oil a day, a fraction of what believed to exist. Gerhard said
"Seventy-five to 90 percent is never taken out of the well, just the small percentage that is under pressure." Gerhard said.
But Gerhard said he would like to see the percentage change with more efficient use of Kansas' oil wells. He is seeking 200,000 in federal grants to aid in the development of new recovery methods for oil remaining in the earth after initial pumping is finished and the well has been abandoned.
Gerhard said the money was needed to provide the Geological Survey with more people and equip- ment to focus on the oil recovery problem.
Gerhard said that the money could result in a large revenue benefit to the state.
"In North Dakota, the National Geoscience Institute took a $20,000 investment, and through improved recovery, returned $4 million in the state." Gerhard said. "That's what we're trying to do here."
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