Oil-Producing Areas See Record Tax Revenues

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Written by Paul Wiseman for Industrial Info Resources (Sugar Land, Texas)--As governments wrestle with the idea of taxing windfall profits due to high oil and gas prices, and as the U.S. federal government considers a holiday on gasoline taxes, governments in oil-producing states of the U.S., as well as countries abroad are themselves collecting record revenues from those same high prices.

Texas, whose prolific Permian Basin leads the state in producing record levels of both oil and gas, reaped $666 million in crude oil production taxes for the month of April, an all-time record. That number is double the figure for the same month in 2021.

Production is similarly high for other oil states, especially the top six of Texas, New Mexico, North Dakota, Alaska, Colorado and Oklahoma. Texas alone produces more than half the nation's domestic oil supply.

Second place New Mexico, for example, also announced a record amount of $204 million in leasing revenues for April. Overall oil and gas earnings through the first seven months of the state's fiscal year, which ends on June 30, was a record $1.15 billion--but oil and gas royalty earnings are reported on a three-month delay. So when those numbers are added, the totals will be even higher.

The Oklahoma Treasurer's office reports that for the current fiscal year "oil and gas gross production tax collections generated $1.36 billion, up by $718.3 million, or 111.3 percent" higher than that of the corresponding period for the previous fiscal year.

For those top-producing states, oil and gas production revenues are a large percentage of the state's budget. In New Mexico, the New Mexico Tax Research Institute calculated that tax revenue from the oil and gas industry made up 33% of the state's revenue in the last fiscal year. Much of that revenue funds schools and other civic projects.

In Texas, with a much higher population, oil and gas tax revenues are only the fifth-largest source of revenue, with sales taxes accounting for well over half the state's tax income. Still, $666 million in a month is significant. Some of that goes into the state's Rainy Day Fund (officially the Economic Stabilization Fund), an account geared primarily toward eliminating deficits in years when tax revenues drop. Several other producing states have similar accounts for extra oil revenue.

On a national level, the U.S. Department of the Interior Natural Resources Revenue Data website reports total oil, gas and coal royalties at just under $9 billion for 2021, the second-highest level in the last five years.

In April, the Department of the Interior announced plans to raise the royalty rate for new leases by 50% over historical levels, to 18.75% from the previous 12.5%. Those rates had previously been unchanged since their inception in the 1920s. The announced goal is to reduce drilling on federal lands while reducing the perceived oil and gas subsidies provided by the government.

Some in the industry believe that raising the rate would hamper production, but a 2016 Government Accounting Office study predicted that even a rise to more than 22% would have a minimal effect on drilling. It would seem the greater reason for a slowdown in federal land production is the current administration's reluctance to lease at any percentage.

World Scale
The biggest government winners are, of course, OPEC countries. Rystad Energy says it expects oil and gas taxes worldwide to contribute cash flow to all governments of $2.5 trillion in 2022.

Leading that list is, of course, Saudi Arabia, followed by the U.S. and Iraq. The $2.5 trillion for 2022 compares to just $600 million in 2020, the heart of the pandemic-related travel shutdowns.

According to Rystad, "Saudi Arabia will be the largest beneficiary in absolute terms and is expected to receive just above $400 billion from its cornerstone industry this year, an increase of almost $250 billion from 2021. The US, when including royalties paid to private landowners, takes second spot with around $250 billion paid to government, an increase of $100 billion compared to 2021. Iraq follows with about $200 billion in total tax income, a doubling of its income compared to 2021."

Specifically on the U.S. side, this shows that oil producers are already paying into government coffers on leasing activities alone, not including corporate taxes and fees. The irony that is not lost on states like New Mexico and others is that, should the energy transition continue away from oil and gas, those tax dollars will be hard to replace in state budgets.

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