North Dakota has passed legislation aimed at increasing new investments in oil drilling in the Bakken geologic formation, a well known oil reserve located in the western portion of North Dakota and crossing into parts of Montana and Canada. This new legislation offers temporary state tax incentives for new wells drilled in the Bakken formation area, and is expected to increase investments in new oil wells over the designated time span for the tax incentives and bring about a positive impact on North Dakota’s economy.
The Bakken formation is a part of the Williston Basin, which lies beneath areas of eastern Montana, northwestern South Dakota and adjoining parts of Canada as well as a majority of North Dakota. The Bakken Formation is a lucrative producing area for oil wells, and progressive oil drilling methods such as horizontal drilling have yielded increased production in the area and prompted experts to reevaluate and increase the outlook for expected recoverable reserves there.
The newly approved legislation, which takes effect on July 1, 2007, provides tax incentives for the first 75,000 barrels of crude oil drilled from new wells in the Bakken formation. The required state tax is reduced from 11.5 percent to 7 percent of the value of the oil for qualifying wells drilled between July 1, 2007 and June 30, 2008. Such tax incentives combined with a positive production outlook for the area are expected to attract significant new drilling operations and thus revenues for the state.
Opponents of the temporary tax decrease assert that the tax cut is unnecessary and will result in an estimated revenue loss for the state in excess of three million dollars. Proponents of the incentive believe that the influx of additional oil investments prompted by the tax incentive will more than compensate for any losses caused by the tax decrease.
An announcement by Enbridge Energy Partners, L.P., of Houston Texas, is also expected to impact oil producers and investors in North Dakota. The company has announced plans to expand the capabilities of the Enbridge pipeline system in North Dakota, a project that is expected to increase the capacity of the pipeline by 45,000 daily barrels through the addition of new pipe and improvements to the pump systems. The Enbridge pipeline system transports crude oil from eastern Montana and western North Dakota to Minnesota, where it connects with other pipelines to be delivered to refineries.
