To encourage innovation within the state, a group of energy industry leaders have recommended tax incentive bills to be considered in the 2015 legislative session. The EmPower North Dakota Commission presented policy requests to the interim legislative Energy Development and Transmission Committee on Aug. 14.
North Dakota has successfully created value-added commodities from its agricultural products for years, and the state is hoping it’s the oil and gas industry’s turn to get creative. Because of the Bakken’s rich natural gas properties, there is strong potential for chemical processing facilities to utilize the gases. EmPower offered a bill draft that would create sales tax exemptions for personal property to build or expand facilities in the state, to include anything from fertilizer to plastic processing plants. IHS Chemical, a global information company, presented its findings to the legislative committee in regard to the various chemicals found in natural gas and how those could be processed for value-added products.
EmPower’s Randy Schneider of the North Dakota Ethanol Producers Association told Petroleum News Bakken that IHS outlined a roadmap that identified the strategic advantages Bakken natural gas provides. He said the state needs to make the paradigm shift of thinking that everything should be sent out of state via pipeline and begin to see that the value-add can begin in North Dakota.
“I like to call it the building of North Dakota’s new economy, just like we did with agriculture,” Schneider said. “It took about 100 years to complete that value-added journey, and I think we can do it a whole lot sooner.” He said the state has the resources to develop a healthy, viable chemical plant to convert natural gas into plastics for numerous uses. “I’d like to think at some point in North Dakota’s history that we have a car company here because the natural gas we have here was converted into a plastic that could be put into a car.”
Schneider said if the state became focused on the value-added options outlined by IHS’s report, those ideas could become reality within 10 years.
North Dakota Department of Commerce Commissioner and EmPower Chairman Al Anderson said while the commission is seeking the incentives, it hopes to at least gain a vote of confidence from the state for companies to make investments.
“Where you as legislators have been the most successful is with the value-added agriculture,” Anderson said. “That has made a significant difference in going down that value chain and that’s really the idea associated with the energy portion of it.”
EmPower’s research and development focus has also been on the commercial deployment of carbon dioxide with collaboration between the coal and oil industries in the state. Schneider urged the legislative committee to provide more research funding to support the technology needed to take the gas from the coal plant to inject into wells for enhanced oil recovery.
“This is a great way to collaborate … what for one industry is a negative we can use that as a positive in the other industry and capture that CO2,” Schneider said.
Recycling dill cuttings
Another draft bill provides tax incentives for companies that could offer a beneficial use for drill cuttings to eliminate the need to bury them onsite. It puts much of the responsibility on the state’s Department of Health to license drill cutting recyclers and make rules to govern and monitor them. The incentives would include two levels of reduced oil extraction taxes. The first would reduce the 6.5 percent tax rate to 5 percent on the first 50,000 barrels of oil in the first 18 months of production if the operator could recycle 75 percent of the drill cuttings. If an operator hits that 75 percent mark and, in addition, does not bury any cuttings, then the tax rate would drop to 4 percent. No recycling companies are presently operating in North Dakota as the technology is quite new, but North Dakota Petroleum Council President Ron Ness said one in-state company is working to develop the business. According to the Energy and Environmental Research Center, EERC, at the University of North Dakota, initial costs for an operator to recycle the cuttings reach $130,000 to $150,000, and if the incentive were fully utilized it would cover approximately $60,000 of that total.
“We are hopeful that virtually all of it could be put to beneficial use,” said EERC Associate Director for Research John Harju. “There’s technology that can be deployed quickly that will quantitatively remove the hydrocarbon for reuse and that by doing some other creative things in the hole we can ultimately direct various segments of the hole to a series of beneficial uses.”
Ness said one potential use of the drill cuttings is to extract the clay to make better gravel for county roads.
“There’s a bigger incentive to leave no cuttings or reserve pit on the land which is what the landowner wants,” Ness said. He added that the state’s health department would need to put rules in place to ensure the recycled materials were being put to a beneficial use that would qualify for the incentive.
Pipeline incentives
EmPower also recommended sales tax exemptions for the materials used to construct oil gathering pipelines. The exemption would be similar to others like it in the state in that the company would either get a certificate from the tax department to not pay the taxes or be refunded for any taxes paid. The taxes would include use tax and be effective June 30, 2015. The cost of installing gathering lines for companies is approximately $150,000 to $175,000 per mile, a high price according to Ness. The sales tax exemption would equate to about $2,500 per mile. Ness expressed the importance of the incentive as oil gatherers won’t find the economic benefit to serve the state otherwise. “You can just put that oil in trucks if you don’t keep these oil gatherers engaged here,” Ness said.
Rep. Todd Porter wondered if there could be incentives given to landowners for allowing easements in an effort to “sweeten the pot.” He said in the long run those easements help with minimizing flaring and moving product but landowners are experiencing easement fatigue right now.
“You can give all the incentives you want to the companies but if that person doesn’t sign the dotted line, the pipeline isn’t going anyway,” Porter said.
Ness said the commission did consider a property tax incentive for landowners, but between the complications it would entail for counties to implement and the small dollar amounts a landowner would actually receive, the concept was shelved.
