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Monday, May 24, 2010

J.D. DONAGHE:THE NORTH DAKOTA ENERGY SOLUTION

 

A government without selfless leadership can be likened to a ship without a rudder, blown about by every wind of doctrine and politically expedient policies designed to maintain control, rather than serve the people.

 

The evidence of this is represented in North Dakota by the absence of a common sense energy policy that would address the current oilfield development impact problems while capitalizing on the potential oil and gas revenue for our state and its citizens. We have the opportunity at this time in history to implement common sense legislation that would effect long term wealth for the state and therefore enable the elimination of property and income taxation in addition to a reduction of state sales tax rates. But more importantly, we have a solemn responsibility to protect our citizens from excessive danger and personal risk as they travel the state in their daily pursuits.

 

The current heavy truck traffic due to increased oilfield activity in the western part of North Dakota has become a matter of life and death to every citizen who travels within the area and this issue must be addressed immediately before one more innocent life is lost.

 

Conventional political ideology would suggest that we need to raise taxes on all the citizens of the state and build more roads in western North Dakota to accommodate the huge increase in heavy truck and industrial traffic. However, building roads will take years and as anyone knows, road construction decreases travel safety and impedes the normal flow of traffic during the construction period, complicating an already dangerous situation that requires an immediate solution. Furthermore, the people are already crushed by the current burden of taxation.

 

The obvious solution is to reduce heavy truck traffic immediately by implementing a well planned development of the North Dakota oil and gas fields as opposed to the “wildcatter” approach currently underway.

 

 

Multiple well locations are the solution.

 

Currently we are drilling a well in about 30 days, which means we are moving the drilling rig every 30 to 40 days. With our current rig count this means we are moving 80 plus rigs per month on North Dakota roads and highways. By implementing a multiple well location strategy we could reduce the rig move to every 6 or 8 months instead, providing a decrease of up to 800% in heavy truck traffic.

 

In addition, 6 or 8 wells per location would warrant drilling a fresh water well on location to supply the drilling fluid needs and onsite living quarters requirements during the drilling process. This would further eliminate heavy truck traffic hauling fresh water to location.

 

Finally, we can reduce our waste water removal traffic by installing waste water disposal pipelines during the gas and oil pipeline installations to transport the waste water generated by each well to a centralized disposal facility.

 

These simple actions will dramatically reduce the heavy truck traffic threats normally associated with oilfield construction and maintenance, increasing the safe travel conditions for the residents of western North Dakota while bigger and better roads are built to sustain the long term expansion of our energy fields.

 

Financial Impact

 

Drilling in North Dakota has increased under the Obama administration due to an inherent opposition by the left for oil and gas exploration on federally owned lands. So while other oil and gas producing states wherein the energy fields are typically located on state and federal lands struggle to obtain leases and permits from the Federal and State governments, North Dakota’s mineral rights are predominantly privately owned.

 

This works to our advantage in the rig count, but it works against the state in raising long term oil revenue wealth for the state because the royalty revenues normally available to the public are privately owned. The oil extraction tax generates viable state revenue but it is only a small portion of what could be available to state revenues if standard royalties or percentages were generated additionally.

 

Currently across the state the people are crying out for property tax relief, but the success of this ballot initiative will depend upon the ability of the state to replace the property tax revenues with another source of revenue to fund schools, roads and social program spending.

 

State minority ownership of oil and gas wells is the solution to long term wealth for North Dakota which would enable the complete elimination of both property and income taxes without a loss of critical revenue.

 

I propose that we take our current budget surplus and the surpluses for the next 2 years and invest into the oil and gas wells to obtain long term residual income for the state. This 2 year investment plan would require a continuation of the current tax rates and a freeze or reduction in current spending, allowing a potential 2.5 to 3 billion dollars to be invested with a potential 40 to 50 year return on investment. These residual returns combined with the oil extraction tax would easily surpass the current revenue totals making way for permanent tax relief and a secure financial future for North Dakota and its residents.

 

We have a responsibility to our posterity to act prudently at this time in our history and implement sound fiscal policy that will have a sustained positive impact on our communities for years to come.

 

 

Example

 

Cost to drill a well                                              6,000,000.00

Cost of 30% ownership                                      1,800,000.00

Average oil production per well                        50 barrels per day

State portion of production per well                  15 barrels per day @ $50.00 per barrel

Projected state revenue per well                        $750 per day = $273,750.00 per year

 

Potential Annual Revenue Based on Investment

                                                       $500,000.00 to $1,000,000,000.00 per year

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Comments

Bad idea all around to use the oil revenue to buy out oil leases. 

If we’re concerned about the long term prospects of the oil business we should make the government LEAVE the Permanent Oil Tax Trust Fund alone.  The big greed Republicans running the state have stolen hundreds of millions of dollars out of that fund.  That’s enabled them to increase the size of ND government far beyond what’s wise or needed.

Regarding the concerns over the roads and a justification to control development of the oil fields I don’t know that much about it.  Still I think it’s wiser to use the oil revenues to repair the roads and let the market decide where to drill.  After all it should be up to the experts where the most productive wells will be.  And if the new wells produce we gain on the extraction tax.


1% of Americans pay 40% of the income tax.
5% of Americans pay 60% of the income tax.
10% of Americans pay 70% of the income tax.

Obama Lied, Grandma Died!


The Whistler's signature
The Whistler on May 24, 2010 at 01:23 pm

It seems that it is always a very bad idea to have government owning means of production. I know of very few examples of such an arrangement no leading to corruption and distortion of market forces. If you need to a stake in oil revenue it should be in a transparent fashion like legislated tax rates.

Steve Cates on May 24, 2010 at 04:55 pm

And we already have a significant stake in the oil revenues since we have the extraction taxes. 

Sure the owner of the mineral rights gets a payment, but it’s not 100% of the price of the oil.  I’d like to see a breakdown, but I’m pretty sure the state gets more than a “fair” share.


1% of Americans pay 40% of the income tax.
5% of Americans pay 60% of the income tax.
10% of Americans pay 70% of the income tax.

Obama Lied, Grandma Died!


The Whistler's signature
The Whistler on May 24, 2010 at 05:11 pm

The next legislative session needs to do three things; 1) Reduce oil and gas taxation very slightly to give a strong indication to the oil and gas industry that our state’s leaders “understand the direction” we must go, in the long term, to achieve sustained oil and gas development. 2) Divert a substantial amount of oil and gas revenue to critical infrastructure needs (roads, water pipelines, housing loans) in western North Dakota, and 3)Help out the eastern portion of the state with flood control needs, but only after leaders in the east come to understand that they cannot assume the “Cadillac” plan curently favored is a “white elephant”. Doorknob, Con-man, and Little Lord Pomeroy intimidating the Corps into accepting a “North Dakota diversion” at over a $Billion is an extremely bad precident when it is less than half the cost to “do the right thing” on behalf of national taxpayers.

And all of the above assumes that voters this November approve the set-aside of 30% of oil and gas revenues for future generations; if that measure fails, taxpayers deserve nothing and the oil and gas taxes should be repealed! If we are not good stewards of oil and gas taxes, we do not deserve them!!!!!!!!

Lynn Bergman on June 3, 2010 at 01:01 am
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