THE NEWS SERVICE OF FLORIDA: Oil companies seek tax break to restart old fields
Mar 9, 2009
The state’s only producing oil company wants a tax break from state lawmakers to resume extracting oil from its northwest Florida field.
On Friday the House Energy & Utility Policy Committee unanimously approved a measure (HB 515) that would provide severance tax breaks for Quantum Resource Management, a private company headquartered in the town of Jay, near Pensacola.
The company operates a tertiary well field near the Panhandle town. Such wells squeeze the last bits of oil from previously gushing wells by pumping in high-pressure water and nitrogen to push the oil back up out of the ground.
Speaking to state economists Friday, Quantum President and COO Logan Magruder said a break from the 5 percent severance tax is needed to justify firing up the Jay Field operation, which directly employs 65 and would produce about 3,000 gallons of oil a day. The plant has been idle since January. With a cost of production of about $53 a barrel, falling oil prices make it unprofitable. The current price of oil is $42 a barrel.
The proposal would provide a sliding scale of tax breaks based on the market price of oil. If oil were selling between $60 and $100 a barrel, the tax would be 3 percent. The tax break is eliminated as oil price surpasses $100 a barrel and the current 5-percent rate resumes.
“The bill alone does not cause us to go out and turn the spigots on tomorrow,” Magruder said. “It’s a step and a strong, precedent setting measure. It will help others to maybe come into the state.”
Quantum bought the field from Exxon and ConocoPhillips last year for a little more than $200 million dollars.
The major driver, of course, is the market price for oil. Without state intervention, Magruder said oil prices would have to rise above about $70 a barrel for the company to justify going back on line, a process that would take at least 90 days to accomplish. With the tax break, the company could justify drilling at a lower price.
Backers are hoping approval of the legislation will allow them to approach local electric utilities for a similar break on rates. When fully operational, the company uses about 200 million kilowatts a year, for which it annually pays about $16 million.
Quantum field is by far the largest but not the only company with idle tertiary oil fields in Florida. BreitBurn Energy Partners, a California-based company owns oil rights in Collier County. That field, also idle, could produce about 1,400 barrels a day. Combined the two companies represent more than 95 percent of the potential market.
State economists said by giving the tax break, the state would be missing out on about $1 million a year in revenue from tertiary oil field drillers. But the bill’s backers say the state isn’t currently collecting any money from such companies, and that a smaller cut would be better than collecting no tax at all.
“This bill creates jobs, creates revenue for the state where there isn’t any coming in,” said David Mica, director of the Florida Petroleum Council. “And more importantly, it produces American oil.”
The measure, sponsored by Rep. Greg Evers, R-Baker, now goes to the House General Government Council, where it is on the agenda for this coming Tuesday. A similar measure (SB 978) is expected to be heard this week in Senate Community Affairs.