Senate committee hears bill to expand extraction‑tax incentive for non‑Bakken drilling

The Senate Finance and Taxation Committee heard House Bill 14‑83, which would adjust North Dakota’s extraction‑tax incentive to encourage drilling in formations outside the Bakken and Three Forks areas.

Sponsor Representative Craig Hedlund introduced the bill as an effort to broaden exploration and sustain statewide oil production by encouraging investment in other Williston Basin formations. The bill would reduce the oil extraction tax from 5% to 2% on an initial volume of production from qualifying wells outside the Bakken/Three Forks area, increase the eligible barrel amount for the reduced rate on a qualifying vertical well to 125,000 barrels, and extend the qualifying window to the first 36 months of initial production for non‑Bakken wells.

Brady Pelton of the North Dakota Petroleum Council said the change would help smaller and mid‑sized operators bridge drilling economics for conventional vertical wells. Pelton pointed to submitted maps and data showing the current statutory 10‑mile buffer around Bakken/Three Forks formations excludes large areas of the state; he said only a handful of wells per year have targeted the other ten producing formations. He and other witnesses said the incentive would not eliminate the state’s total tax on a barrel — proponents noted a 7% combined rate remains after the extraction change because gross production and other taxes still apply — and argued the sales‑tax and payroll impacts of additional drilling would also benefit local economies.

Service‑sector testimony came from Steve Farden (Maxbass), who described multi‑generation, small‑town oil‑field businesses and said the incentive would revive exploratory drilling in shallower formations where smaller operators historically worked. He and others said a successful conversion from special‑assessment style financing in other domains shows smaller projects can support local suppliers and jobs.

Nathan Anderson, director of the Department of Mineral Resources, said 97% of current North Dakota production is from Bakken and Three Forks and that expanding activity into other formations would broaden the state’s production base. Agency data cited in testimony showed roughly 1.2 million barrels per day statewide production with about 36,000 barrels per day outside the Bakken area; DMR estimated only about 15–20 qualifying wells are drilled outside the Bakken annually under current code due to the 10‑mile buffer and existing economics.

Committee members asked technical and fiscal questions: senators requested more precise return‑on‑investment numbers and cost estimates; witnesses offered example figures — proponents used a $65 per barrel price to illustrate that the incentive on 125,000 barrels would be roughly $243,000 per well, and witnesses gave typical cost ranges of $2 million–$4 million for conventional vertical wells versus $8 million–$10 million for horizontal Bakken wells. Members discussed whether 125,000 barrels would be sufficient to move major operators and proposed increasing the eligible barrels for horizontal wells; suggestions in the hearing ranged from 250,000 to 300,000 barrels for a horizontal incentive.

Tax department testimony noted the state’s 5% sales tax applies to drilling equipment and supplies brought into North Dakota — a factor proponents said offsets some state revenue loss from the extraction‑tax reduction.

The committee closed the hearing on HB 14‑83 without a vote. Senators agreed to work with industry and interested legislators on possible amendments, including exploring a larger eligible‑barrel threshold for horizontal wells (members named Senator Rummel, Senator Patton and Senator Wallen as volunteers to work on amendment language). The committee scheduled follow‑up drafting and asked for additional fiscal and well‑economics detail before considering committee action.

Ending: Proponents said the bill would lower drilling risk for small and mid‑sized operators and help diversify the state’s production; critics raised drafting and revenue questions and asked for more detailed economic modeling. The committee left the record open for amendment work and further technical information.