Associated Press

OKLAHOMA CITY -- A bill providing new tax breaks to the energy industry includes some unexpected provisions, but projections on the impact to state coffers have been overstated, the governor's top budget negotiator said Thursday.

Democratic State Treasurer Scott Meacham said a change related to tax breaks for horizontal drilling is expected to cost the state about $13 million a year beginning in 2015.

Meacham said Wednesday after the bill was brought up in a Senate budget panel that the changes related to horizontal drilling weren't discussed during budget negotiations with legislative leaders. On Thursday, he acknowledged he simply wasn't clear about some details that were presented by industry officials.

"We did not realize that would have that impact," Meacham said. "We didn't realize that was part of what they were talking about."

The changes were developed as part of an agreement to defer for two years an estimated $80 million in drilling incentive payments the state owes to producers. The state plans to use that money to help plug a $1.2 billion hole in next year's state budget and pay it back over three years beginning in fiscal year 2013.

The bill was approved Thursday in the Oklahoma House and now heads to the Senate.

The proposed new law eliminates a provision that incentives for horizontally drilled wells end once the investment costs of the well are recouped. The incentives, which reduce the gross production tax from 7 percent to 1 percent, can only be claimed for the first 48 months the well is in production. Meacham said a change to existing law that limits the credit to 24 months applied only to wells producing before 2002.

Another change to the tax incentives for deep-well drilling actually increase the amount of gross production taxes paid from 1 percent to about 4 percent, but removes a $25 million annual cap on the credits.

Meacham said projections from the Oklahoma Tax Commission show that change should be revenue-neutral.

"We don't really have a problem with that," Meacham said. "That is minimal or has no (revenue) impact."

Some members had expressed concern that changes in the law proposed by industry lobbyists could cost the state hundreds of millions in future revenue.

State Sen. Tom Adelson, a critic of Oklahoma's energy tax structure, said regardless of the ultimate fiscal impact to the state, he's concerned about the influence the industry has at the state Capitol.

"From my own perspective, this idea that the oil and gas industry ... is doing us a favor, as if we need their permission when deciding what type of exemption or privilege we grant them -- they're not entitled to anything," said Adelson, D-Tulsa. "The fact is the special treatment they get is a benefit to them."

But Meacham said the industry is critical to the state's economy, with gross production taxes alone accounting for the state's third-leading revenue source. He added that much of the state's top two sources of revenue, income tax and sales tax, are directly connected to the energy industry.

"A lot of how Oklahoma's economy does depends on how the oil and gas industry is doing," Meacham said. "We believe we need to invest in new production in Oklahoma if our economy is going to continue to grow out of the recession that we've just experienced."