Kansas oil industry says high electric rates and rising costs threaten marginal wells and local tax revenue

Dana Reath, chair of the Kansas Independent Oil and Gas Association (CIOGA) and an engineer who works for Brexco, told the House Committee on Energy, Utilities and Telecommunications that rising electricity prices and higher operating costs are squeezing marginal oil and gas wells in Kansas and could force some wells to be shut in permanently.

Reath said the average Kansas oil well produces about 2 barrels of oil per day and the average gas well about 21 Mcf per day, making many wells financially marginal. He used a Brexco-operated well southwest of Hays (the Copeland well) as an example: royalties are about 16.5 percent of gross revenue, electricity costs for that well run about $676 per month and net profit on the example well was roughly $168 per month. "Every oil and gas well is like a small business," Reath said, arguing that modest increases in operating costs can erase profit and lead operators to permanently shut a well.

Why it matters: Reath emphasized that oil and gas production generates local income and tax revenue. He said Kansas oil and gas contributed more than $186 million in oil and gas taxes in 2023 and cited, as one company example, about $678,000 in real estate (ad valorem) taxes paid in Finney County in 2023 by a single firm. Reath also described severance tax as a flat percentage of revenue on oil and gas sales and said it is "about 4.3 percent." He contrasted oil and gas tax treatment with his view of wind and solar projects, which he said pay different taxes or payments in lieu of taxes.

Reath told lawmakers the sector is sensitive to multiple cost drivers that have risen in recent years — steel, cement, wages and electric rates — and that the divergence between crude price and drilling activity over the last four or five years reflects that higher operating costs have suppressed drilling. He said Kansas’ Oil and Gas Conservation Division at the Kansas Corporation Commission (KCC) is a well‑regulated body and that regulation in Kansas compares favorably with other states where Brexco operates.

Committee members pressed Reath on what the Legislature could do. Several members — including Rep. Carmichael, Rep. Ojai and Rep. Penn — asked about electricity policy and whether renewable generation and transmission investments are raising overall consumer bills. Reath argued that some costs tied to intermittent generation and new transmission can raise rates and suggested the Legislature consider whether tax or rate policy should be adjusted so that different generators bear comparable costs; he also suggested the state could examine whether wind projects contribute tax revenue comparable to severance tax, noting an estimate he cited of roughly $80 million a year from such a change "from some estimates I've seen." Reath urged that local load‑management tools, such as time‑of‑day rates, could help: many oil wells run continuously and could reduce usage during peak periods if properly incentivized.

Lawmakers asked technical and policy questions. Rep. Ojai asked whether increased rig counts are possible; Reath said Kansas is a price‑taker in a commodity market and that higher commodity prices would be the primary driver of increased drilling. Rep. Schreiber and others discussed whether lessons from Texas’ electric market restructuring could apply in Kansas; Reath said Texas has decoupled generation and retail choices from transmission but warned reliability and regulatory safeguards are required. Several members expressed interest in exploring ways to reduce electricity costs without broadly dismantling regulation.

Reath also recommended a practical test for the Legislature to judge regulatory complaints: pay attention to where witnesses live — complaints coming from producing counties (for example, Pratt, Garden City, El Dorado) may indicate operational problems, he said, whereas testimony from nonproducing urban counties may reflect ideological positions rather than on‑the‑ground issues.

Discussion versus formal action: the committee did not take formal votes on legislation during Reath’s appearance. Members engaged in a Q&A about electricity rates, taxation, regulatory structure and incentives for load management; no motions or votes were recorded on the record during the presentation.

Ending: The committee adjourned after setting the next meeting for Thursday, Jan. 30, which will include a presentation from Kansas State Research on the K‑State research reactor and a planned hearing before the KCC on House Bill 2040. The transcript indicates the committee scheduled the hearing but provides no further details about the bill’s text or committee action on it.