follow us Twitter Facebook
<< Back to News

Solich: Raising taxes would cause rigs to move

November 02, 2017
George H. Solich, president and CEO of Denver-based FourPoint Energy LLC, spoke at OIPA’s Wildcatter Wednesday Luncheon in Oklahoma City on Nov. 1.

FourPoint holds the largest land position in the Anadarko Basin and has significant assets in the Permian.

The Anadarko’s position overlaying western Oklahoma and the Texas panhandle makes Solich perfectly placed to offer insight into how costs — including taxes — affect margin, and thereby where a company decides to drill. FourPoint has rigs running on both sides of the state line.

“People can move rigs where they make the highest margin and the highest return,” Solich said. “And we certainly don’t want the rigs to move out of Oklahoma because of lower margins. Many of the zones that we explore for are on that razor-thin edge of having an acceptable rate of return.”

In a talk that focused on FourPoint’s past, present and future, Solich spoke of the negative effects raising the gross production tax would have on the industry and the state as a whole.

“This is a jobs driver in this state,” he said, pointing out the industry employs one in six Oklahomans, and that each rig running means at least 16 oilfield jobs and 35 indirect jobs.

A long-lateral rig running for a full year in Oklahoma means nearly $200 million in direct and indirect economic activity and more than $4 million in direct state and local taxes, Solich said.

“It’s clear that our industry pays its fair share today, and certainly with the increases from 2015 to today, we’re bearing a good part of that burden,” Solich said, pointing to about $280 million in tax increases on oil and natural gas in the past two years.

Increasing the GPT would also decrease the sales tax generated by the rigs and workers who would go away, he said.

“There’s a lot of wood to chop before this gets figured out,” he said. “The answer has to come from a lot of different places.”

Solich said one source of revenue would be to level the playing field for wind and oil and natural gas.

He pointed out that Wyoming, 18th in wind generation at 4.4 million megawatts, collected $4.4 million in 2016 tax revenue from its $1 per megawatt hour tax on wind.

Oklahoma, third in wind at almost 20 million megawatt hours generated, collected nothing. If the state taxed wind at Wyoming’s rate, revenue would have been about $20 million in 2016.

“And if we were to match a wind GPT to what is being suggested for our industry, that would even be higher,” he said.

Vision and Teamwork

Solich started in the land department at Apache Corp. and went on to form and sell a number of private equity-backed E&P companies.

Cordillera Energy Partners I was the first.

“We didn’t know what we didn’t know,” Solich said of the first startup.

Solich said FourPoint’s charge was to be the best private equity E&P company that’s ever been built.

“The No. 1 attribute to creating value is the team,” he said. “… Assets come and go. It’s the people that continue to drive the success.”

In 2016, Solich also launched a second company focused solely on the acquisition of oil and gas mineral interests, LongPoint Minerals, LLC, which now holds close to 43,000 net mineral acres.

Minerals have traditionally not been a target of private equity companies, he said, but he expects that to change as more sophistication comes into that side of the industry.

Solich said the western Anadarko Basin presents a tremendous opportunity because of the low number of long lateral wells that have been drilled there.

“We have a lot of catching up to do. There’s been five times the number of long laterals drilled just across the state line in the Texas panhandle as there have been in Oklahoma.”

Oklahoma’s Senate Bill 867, which went into effect earlier this year with OIPA support, makes a number of western Oklahoma locations economic for drilling, he said.

“Ninety percent of all the wells that FourPoint will drill in 2018 will be long laterals,” he said. “We just drilled a 7,500-foot long lateral in the Lower Cleveland and we drilled in the same number of days that we used to take to drill a standard lateral.”

The ability to drill long-lateral wells is what is so powerful to FourPoint’s economics in exploring for hydrocarbons, he said.

“We love the Midcontinent and all the folks that work here,” Solich said. “I like to live in the Rockies, but we like to work south of the Mason-Dixon line, where they like to see you coming with a rig.”

<< Back to news