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Tax break meant to spur new refinery construction

DALE WETZEL, Associated Press
Thursday, 11 Oct 2012 | 8:51 AM ET

BISMARCK, N.D. -- A tax break for oil that's processed in North Dakota would help make new refineries profitable and would pay for itself though increased economic growth, a developer told state lawmakers Wednesday.

"What I'm looking at there is something that could add value to the whole state, and all it takes is some refining," said Mel Falcon, the vice chairman of Dakota Oil Processing LLC of Williston.

A legislative energy committee on Wednesday endorsed the idea. The North Dakota Legislature will take it up when lawmakers begin their next session in January.

North Dakota levies a 5 percent production tax and a 6.5 percent extraction tax on crude oil. The revenue goes to the state's general operating fund, local governments and an assortment of trust funds.

Falcon's proposal, which has been advocated by Rep. Shirley Meyer, D-Dickinson, would exempt oil from the extraction tax if it is processed in a North Dakota refinery.

As drafted, the tax break would continue indefinitely. Falcon said he did not expect the Legislature to approve the incentive for more than five years.

Falcon did not estimate how much the proposal would reduce tax revenue, but he argued it would more than pay for itself because of the jobs and economic growth that new oil refineries would bring.

North Dakota would have a more assured supply of gasoline and diesel fuel, and could become a hub for manufacturing products made from oil, Falcon said.

He believes producers would get higher prices for their crude, because they would no longer have to pay high transportation costs. Most of North Dakota's oil is exported by pipeline and rail to refineries in Minnesota and the Gulf Coast.

"If we had more refining capacity here, we would have some of these spinoffs. We'd be able to manufacture a lot of these products," he said. "We'd have jobs and money going back into the economy when the oil drilling is gone."

The Republican-controlled committee split 5-3 on whether to support the tax break. Its chairman, Sen. Rich Wardner, R-Dickinson, who is the Senate majority leader, said he was uncertain whether it would translate into lower fuel prices.

"Does the money, the deduction get to the right place? There are questions about that," Wardner said.

North Dakota now has one oil refinery, a Tesoro Corp. facility near Mandan, which is capable of processing about 68,000 barrels of oil daily. A Tesoro spokeswoman, Tina Barbee, said Wednesday the company had not previously heard of the proposal.

In August, the most recent month for which statistics are available, North Dakota oil wells pumped an average of 701,000 barrels a day, according to the state Department of Mineral Resources. North Dakota ranks second behind Texas among oil-producing states.

Dakota Oil Processing is planning construction of a refinery that would make diesel fuel, a prized commodity among North Dakota farmers, ranchers and oil producers, and naptha, a widely used solvent. The facility would be built near Trenton, about 15 miles southwest of Williston, and handle about 20,000 barrels of oil daily.

The Three Affiliated Tribes has been planning a separate refinery, near Makoti on the Fort Berthold Indian Reservation, which would process 13,000 barrels daily into diesel fuel, propane and naptha. Propane is used for heating and cooking.

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