A mineral tax break bill was recently signed by Wyoming Gov. Mark Gordon for oil and gas operators in the Cowboy State with the hope of making it a more attractive place to stay and continue drilling when the economy recovers.

The state legislature bill, House Bill 243, would begin if the 12-month rolling average of oil prices falls below $50 per barrel. For natural gas, the 12-month rolling average would need to be less than $2.95 per thousand cubic feet. In these scenarios, the state’s mineral production tax (severance tax) would be reduced by 2% under the new act.

Meanwhile, the Wyoming Oil and Gas Conservation Commission (WOGCC) has voted to reduce the current amount of conservation taxes assessed on oil and gas companies to .0000 mill levy under Wyoming Statute 30-5-116(b).

According to IHS Markit, the reduction will be effective for six months starting April 1 through Sept. 30. The tax will then return to .0005 (5/10) of a mill on Oct. 1. The oil and gas commission also determined that tax forms may be filed electronically in order to track sales which are a requirement under commission rules.

The bill also has its limits. Oil operators will not be able to reap the benefits of the relief until the act goes into effect July 1. Eligible operators would see 2% removed from their severance tax rate for the first six months of production, and 1% for the six months after that.

Ultimately, the relief only applies to a well for one year. The bill is also meant to be temporary and includes a provision to sunset the relief at the end of 2025.

WOGCC Supervisor Mark Watson said that the oil and gas industry is experiencing unprecedented times and that it is prudent to provide relief that will aid in assisting business and employment for Wyoming citizens.

“Reducing the conservation tax and providing some reprieve are necessary steps that the WOGCC Commissioners have approved to help in this difficult business environment,” he said in a statement.

Watson also noted that that the tax is used solely to fund the WOGCC’s budget, and that it does not have an impact on the state budget.

Spending cuts

The spread of the coronavirus and a global price war by Saudi Arabia and Russia are affecting Wyoming’s drilling and production.

Since the market crash, several major oil and gas companies in the state have trimmed workforces or reduced operating expenses and budgets. For example, Devon Energy Corp. cut its 2020 spending forecast by nearly 30% to about $1.3 billion in response to the slump in crude prices. The shale producer expects to affect its assets in the Stack play of Oklahoma and Powder River Basin in Wyoming the most.

While larger oil and gas companies may be more poised to weather the downturn, mid-size operators with debt could be hit the hardest by the price environment. 

As of April 2, Wyoming’s governor has not issued a shelter-in-place order due to halt spread of the virus but has closed schools and businesses where people tend to congregate, including bars, coffee shops and hair salons. 

The WOGCC offices remain open and some of the staff are teleworking. The agency’s web site said that the commission is ‘available to assist and carry out work.’ Teleconferencing will be used for commission meetings during April and they have canceled all hearing other hearings.

Wyoming is home to the Powder River Basin, which is estimated to hold about 1 billion barrels of remaining recoverable oil, according to estimates from the U.S. Geological Survey.

The state ranks eighth nationally in crude oil and natural gas production. During 2018, 361 companies/operators produced Wyoming’s crude oil and 227 companies/operators produced natural gas, according to the Petroleum Association of Wyoming. 

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Chart: Western Rig Count (Incl. California, Colorado, Idaho, Montana, Nebraska, Nevada, New Mexico, North Dakota, Utah and Wyoming)

The rig count in Wyoming averaged 33 rigs in 2019, per data from Baker Hughes Co. As of April 3, the count of rigs working in Wyoming stands at 14.

Layoffs

In 2019, Wyoming had 9,499 workers in the state involved in transmission and distribution (pipelines) and storage, according to the U.S. Energy and Employment report. Fuels, including exploration and production, employed 22,038 workers and other fossil fuels (e.g., coal) makes up the largest segment of employment in this category.

As of the beginning of April, the state announced that there were more than 6,000 unemployment claims.

The Casper Star Tribune reported that oil and gas production declines were mirrored by a drop in oilfield services jobs. Employment in the sector was 11,800 in February, down from 12,900 in 2019. White-collar jobs in oil and gas extraction was largely unchanged compared to the previous year at 4,500.

Onshore