BISMARCK, N.D. (AP) — North Dakota oil producers almost certainly will be paying higher state taxes for at least three months beginning June 1 due to strong oil prices, the state tax commissioner said Wednesday.
The increase in state oil tax collections, estimated at more than $30 million in June, is possible because of a state law that adjusts North Dakota’s oil extraction tax when the three-month average price of a barrel of oil is above a specified “trigger” price.
The monthly averages are figured using West Texas Intermediate prices, the U.S. benchmark set at Cushing, Oklahoma. The trigger price is now $94.69 a barrel. It is adjusted annually for inflation, using a price index for industrial commodities compiled by the U.S. Labor Department’s Bureau of Labor Statistics.
WTI crude was fetching about $110 a barrel Wednesday morning, and has been above the price trigger since Feb. 28.
Kroshus said WTI crude averaged $108.94 in March and $101.92 in April. Prices in May have been “tracking well above the trigger price.”
The oil price would have to fall below $20 a barrel for the remainder of May for the average to fall below the trigger, Kroshus said.
“At this point it’s essentially a given that the oil extraction tax trigger will go into effect June 1,” Kroshus said.
North Dakota has two primary taxes on oil production — a production tax and an extraction tax, the latter of which was part of an initiated measure voters approved in 1980.
The current trigger is part of that 2015 legislation that abolished some price-based incentives for the oil industry in exchange for a lower oil tax rate — from 11.5% to 10%. But the bill also raised the total oil tax to 11% — 5% production and 6% extraction — if oil prices rise above the trigger price for three consecutive months.
The increased tax rate is erased if oil slips below the threshold for three consecutive months.
Kroshus said the amount of extra revenue will vary while the trigger remains in effect, depending on the average price of oil and production, which has averaged about 1.1 million barrels daily for the past several months.
Oil prices are a key contributor to the wealth of North Dakota, which is the No. 3 oil producer behind Texas and New Mexico.
Lawmakers last spring assumed oil prices would be $50 a barrel when they crafted the present two-year, $17 billion budget.
According to the U.S. Department of Energy’s information administration, WTI oil prices have only held at $95 or more a barrel for three or more consecutive months five times since 2008.