Applying the Bakken crude discount
Applying a discount for Bakken crude of $8 a barrel to the 2013 WTI price yields a per barrel price for Bakken crude in 2013 of around $90 a barrel.
WTI for January delivery trades on Tuesday at around $68 a barrel. Applying the Bakken crude discount, that indicates a price of $60 a barrel for January delivery.
At the roughest approximation, and smoothing the numbers out, the drop to $60 a barrel could cost North Dakota somewhere around $3.5 billion in GDP over the course of a year, if there is no price recovery. Unfortunately, reaching the point of being able to get to a closer number will only be possible once we know what sort of time oil prices remain low and what sort of discount to WTI holds up through time. Then there is trying to factor in which projects may simply go idle or be ratcheted down and delayed.
If the discounted price of Bakken crude remains around $60 a barrel, some producers may be forced to sell assets, and some may even close up shop. But the oil will remain in the ground and that is important to the state of North Dakota.
The state levies a 5% production tax on the gross value at the wellhead of all oil produced in the state, with some exceptions. The state also levies an oil extraction (excise) tax on produced oil. In 2012 the state collected $1.68 billion in oil revenues, up 71.4% over its 2011 collections. Oil taxes provide 42.3% of the state’s total net revenues, nearly four times the individual income tax and more than eight times the revenue received from corporate income taxes.
The state’s 5% oil production tax is split between state and county governments. The state treasurer takes 20% that it then allocates to cities and to an impact grant program. The remaining 80% is split between the state and county governments according to a mandated formula.