By JOHN P. TRETBAR

Kansas Common crude at CHS in McPherson gained a quarter Friday (2/22) to $47.50 per barrel. That’s two dollars more than at the start of the month, and $12 more than the price at the first of the year.

Baker Hughes reported 1,047 active drilling rigs across the U.S. last week, down four oil rigs. Oklahoma’s rig count was down two, while Texas, New Mexico and Colorado each dropped by one rig.

Rig count totals from Independent Oil & Gas Service were unchanged last week, with three active rigs east of Wichita and 26 in Western Kansas. Operators are about to spud one new well in Barton County and one in Russell County.

Regulators approved 15 permits for drilling at new locations across the state last week, three east of Wichita and 12 in Western Kansas. One new permit was filed in Barton County.

Operators reported 26 new well completions last week, 11 in eastern Kansas and 15 west of Wichita. There were completions noted in Barton and Russell counties, but both were dry holes.

Alberta, Canada is preparing a giant oil-by-rail operation to help its oil-sands producers cope with a pipeline crunch. Reuters reports the Canadian province expects a big profit from the venture. Alberta holds the world’s third-largest crude reserves, but has been losing money because of shortages in pipeline takeaway capacity. Premier Rachel Notley has taken numerous steps to turn that around, including mandatory production cuts, and the railroad operation. They will spend roughly $2.8 billion (US) to lease tanker cars and buy service from rail providers. Officials expect to get a $4.48 billion return, or a net profit o $1.7 billion.

Lawmakers in Texas learned that the state agency responsible for plugging abandoned oil and gas wells can’t seal them as quickly as they’re being abandoned. During the last legislative session, regulators said there were around 10,000 such wells in the state, and lawmakers gave them more money to plug them. Observers say the problem is getting worse. Out of 440,000 wells in the state, about 130,000 aren’t producing and will eventually be abandoned.

Lawmakers in North Dakota are considering quite a few new measures for the oil patch. House members approved “Operation Prairie Dog,” a bill that would distribute up to $250 million from oil tax revenue to cities, counties, townships and airports for infrastructure projects throughout North Dakota. The North Dakota Senate opted to keep a provision in oil tax policy that requires companies to pay more taxes when oil prices rise. A bill that sets the groundwork for a new oil tax agreement with three native tribes in North Dakota passed the state Senate Wednesday. It’s projected to send an additional $33 million in oil tax revenue to the tribes. The House approved legislation Thursday that would use money from the voter-approved oil tax savings account to help offset income taxes.

U.S. operators shipped 7,645 tanker cars in petroleum and petroleum products last week, an increase of 17.8%. The Association of American Railroads says the running total so far this year is up 23% over the same period last year. Canada continues to increase its oil-by-rail shipments as well, posting an increase of 6.5% last week, and a 23.5% increase in the running total.

Russia’s third-largest bank has frozen the accounts of Venezuelan state oil company PDVSA. Reuters reports Gazprombank halted transactions with the firm to avoid U.S. sanctions. The Venezuelans have labeled the story “fake news.” The Kremlin has been among Venezuela’s staunchest supporters.

Continental Resources reported annual profits of nearly $1 billion in 2018. The Oklahoma-based shale producer posted net income for the year of $988 million. Company officials say they boosted average daily total production to more than 298-thousand barrels, an increase of 23 percent over the year before. The company reported production in North Dakota’s Bakken shale of more than 183-thousand barrels per day during the last three months of the year.

The Texas oil and gas industry paid more than $14 billion in state and local taxes and state royalties in fiscal year 2018. According to the Texas Oil and Gas Association that’s an increase of 27 percent from fiscal year 2017, and the second-highest total in Texas history. Since 2007 the industry paid over $133 billion in taxes and royalties.

A spike in drilling permit applications, and increases in court challenges, have created a backlog that regulators in Colorado say could take up to three years to clear. At the end of January the Colorado Oil and Gas Conservation Commission had 406 pending applications on their docket. Of those, 30 percent have been protested. It doesn’t help that the COGCC is short one hearing officer, but officials say it would still likely take three years to clear the backlog, even at full staff.

After losing a court fight with the Colorado Oil & Gas Conservation Commission last month, Democrats in the state legislature will try to redefine the commission’s mission in a bill expected soon. The Colorado Springs Gazette reports they hope to place a higher priority on public health and safety. In January, the state’s highest court ruled that under current law, the commission cannot make permitting decisions based solely on health and safety, but must consider other interests. The measure is also likely to give local governments more control over permits, rather than maintaining that oversight at the state level.

The Permian Basin of Texas and New Mexico already leads the nation, and most countries, in crude-oil production. According to the U.S. Energy Information Administration, Permian production will rise above four million barrels per day for the first time in history next month. Already the fastest-growing shale play in the U.S., the Permian is currently producing an average of 3.98 million barrels per day. Next month, EIA predicts that total will rise by 43-thousand barrels per day to 4.024 million. Total U.S. production this year will rise to 12.4 million barrels per day, according to government reports.

Hello from Topeka!

We are at halftime of the 2019 Kansas Legislative session. At the time I am writing this column, we have a few days of being on the floor debating and voting on many bills, then those that pass will move to the Senate and vice-versa. While we have not had a huge number of bills, we are at the point in the session where some important topics are being worked on.

On Friday, the House unanimously approved SB9, 117-0, that would pay $115 million of what is owed to Kansas Public Employee Retirement System of KPERS.

Some of the highlights of the bill include: 1) Meet the actuarial required payment (ARC). This will be the first time this has occurred in 25 years. 2) Increase the school group’s funding ratio, which is hovering too near critical status. The school group has the lowest funded ratio currently at 61.6%, which is close to the critical code red status of funded ratio of 60% or lower. 3) The overall funded ratio of 70%, a milestone accomplishment. 4) KPERS states that postponing the payment costs $630K monthly or approximately $20K/day. While Governor Kelly was not pleased with this bill, every Republican, Democrat and Independent voted in favor of the legislation. It is assumed this will be the first bill she will sign as Governor.

We have been busy in taxation committee. Last Monday, a hearing was held on HB 2261, which would reduce the state sales tax rate on food from 6.50% to 5.50%.

The fiscal note from the Division of the Budget noted that the state’s revenues would decrease by $50 million for FY 2020, and roughly $55 million for FY 2021 and beyond. It is estimated that the cost to implement modifications to the sales tax system would be $2.8 per year and would require six full time employees in addition. Because 16.154% of the total state sales tax revenue is devoted to the State Highway Fund, the fund would decrease by approximately $11 million per year.

Proponent testimonials primarily focused on the fact that the state sales tax rate (6.50%) and local sales tax rates are applied to groceries results in tax up to 11% on food in some areas of the state. Any reduction of the sales tax rate on food would provide financial relief on all Kansas families, and would chiefly assist low income households. Additionally, some proponents drew attention to food deserts and how a high rate of sales tax on food hurts rural grocers.

Opponents to lowering the food sales tax asserted that low income families would stand to benefit greater with a lower sales tax rate in general, rather than a reduction specifically on food. It was also argued that the bill ought to be more inclusive of other items such as candy, which is excluded from the bill’s provisions. It was also noted that some states pick and choose which foods and food products may be excluded from a lower sales tax rate, such as candy and soda. Per the Tax Foundation’s report Sales Tax on Soda, Candy, and Groceries, 2018, 38 states and the District of Columbia fully or partially exempt food sales tax, and 62% of those states exclude either candy or soda from that exemption.

While I have been a strong advocate for reducing sales tax on food, I continue to believe we need to make meaningful reform and a 1 percent decrease, while helpful, seems more like politics that real relief for individuals and families in Kansas.

The other big issue has been SB 22. This is a bill that would make several changes to Kansas income tax provisions in response to changes to the federal tax code in 2017. The bill would decouple state and federal tax codes from changes made in the 2017 tax cuts and allow Kansans to itemize deductions on their state returns when using the standard deduction on their federal returns.

On the first day of testimony, the committee concentrated on the individual components of the bill. The Olathe Chamber of Commerce, the Overland Park Chamber of Commerce, and the Regional Wichita Chamber of Commerce, the National Federation of Independent Businesses, the Kansas Realtors Association, the Kansas Chamber and several other organizations voiced their support for this bill. They stated that decoupling from the federal tax code would allow individuals and businesses to be protected from an unfair tax increase. This would be a tax increase if no remedy is made at the state level, a tax increase that some Kansans cannot afford.

Opponent testimony included the Kansas Center for Economic Growth, Kansas Interfaith Action, the Mainstream Coalition, and the Kansas Appleseed Center for Law and Justice. The opponents asserted that SB 22 proposes a huge new tax experiment that Kansas cannot afford. It was stated that the bill is not revenue-neutral and would solely favor multinational corporations.

On the second day of testimony, the committee focused on the corporation components of SB 22. The committee heard from Brian Hamer, counsel at the Multistate Tax Commission and Michael Hale, Kansas Department of Revenue on what is happening in other states. In addition, the committee reviewed the Global Intangible Low-Taxed Income (GILTI) information provided by the Tax Foundation on January 28. From testimony, GILTI is a guardrail, “intended to tax what are deemed the supernormal returns of foreign subsidiaries, less a deduction, less a calculated partial credit for foreign taxes paid.” GILTI would help curb international tax avoidance techniques like profit shifting to low-tax countries.

During the hearing, the committee heard from proponents Eric Stafford (Kansas Chamber), David Rankin (Seaboard), and Alex Orel (Kansas Bankers Association). Stafford’s testimony was the for businesses, conformity without modification results in a significant tax increase and that Kansas should decouple from the federal corporate income provisions. Rankin also supports decoupling, which would prevent the state from taxing foreign income that historically has not been taxed. Orel’s testimony centered on the FDIC premiums income tax modifications. Orel supports the bill, which treats all financial institutions the same, rather than how the federal tax reform treats them (eliminated the ability of certain financial institutions to deduct the costs of their FDIC premiums). The Bankers Association is asking for Kansas to reinstate the full deductibility of this cost.

Additional written testimony notes that without SB 22, Kansas businesses will pay more in Kansas taxes. Passage of the ill, would “ensure Kansas remains competitive internationally as well as competitive with other states” (Century Link testimony). Other considerations raised where that taxing foreign source income raises serious legal and policy issues, likely to be challenged in court. Most states do not tax this income. If Kansas were to tax, it would place businesses at a competitive disadvantage with other states (Cargill testimony).

We will take action on this bill soon.

I was happy to welcome legislative pages from Palco this week: Samantha Clark, Luke Voss and Austin Stohs, they were accompanied by Shawn Clark.

Also on Friday, Commerce Secretary David Toland and a group from Ellis County toured portions of the city and learned more about a proposed project to work on the Highway 183 by-pass north of Interstate 70. Representative Wasinger and I were pleased to host the secretary and representatives from the Department of Transportation along with Congressman Dr. Roger Marshall.

We are having town hall meetings in the 110th District on Friday: 8:00-9:00 a.m. at the Ellis Pubic Library; 9:45-10:45 a.m. at the Stockton City Building; 11:15-12:15 a.m. Branding Iron II in Phillipsburg; 1:30 -2:30 p.m. Norton Public Library and 3:15-4:15 p.m. at the Graham County Courthouse in Hill City.

If you come to Topeka during the session, my office is in Room: 149-S. My phone number is (785) 296- 7463 and email is: [email protected] and you can always try my cell number is (785) 302-8416.

I hope to see you at one of the legislative updates on March 1st. It is my honor to by your representative.

Rep. Ken Rahjes (R-Agra), is the 110th state representative and chairman of the Higher Education Budget Committee. House District 110 includes Norton and Phillips counties as well as portions of Ellis, Graham, and Rooks counties.