St Croix River Road Ramblings

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Wednesday, June 13, 2012

Frac Sand Revenue

Former MN Governor Tim Palenty has taken a job with the Smart Sand company.  The moratorium on frac sand mining in many counties requires big political clout to move it!  The press release says "This appointment follows the announcement last week that funds affiliated with Clearlake Capital Group, L.P. have made a major investment in the company’s state-of-the-art frac sand facility in Oakdale, Wisconsin. The facility, located on more than 1,100 acres, has an initial processing capacity of over one million tons per year, an extensive base of in-place permitted frac sand reserves, and is expected to be operational later this month."

North Dakota (and other oil producing states) get revenue from oil and gas extraction and use that in place of a state income tax.  In ND the policy is:

 "The gross production tax rate on gas is subject to a price index change on July 1 each year, the rate through June 30, 2011 is $.0914 per mcf. The gross production tax rate on oil is 5% of the gross value and the oil extraction tax rate is 6.5% of the gross value; 4% if the well qualifies for a reduced rate; 2% from qualifying wells in the Bakken formation; and 0% if the well qualifies for an exemption"

Wisconsin and Minnesota are in the frac sand business in a big way, but get no tax on the actual product--the sand.  

The Oakdale WI mine (Pawlenty's sand hole) is expected to produce 1 million tons per year valued at $100 at the mine (taken from estimates seen on the internet at various sites).  One million tons x $100/ton is 100 million dollars.  6.5% of 100 million is 6.5 million dollars.   If we end up with 100 mines, that would be 650 million dollars per year revenue. 

Frac sand mining is happening.  It is moving ahead with extreme speed!   WI and MN need to get on top of the regulation as well as share in the revenue.  The oil producing states are all consistently red states and yet tax oil and gas significantly.  We surely can get something similar passed here in the midwest.