Oil companies are asking the North Dakota Legislature for tax breaks for newly drilled wells, saying the expense of drilling in the western Bakken formation has soared.

Two measures being reviewed by the North Dakota Senate's Finance and Taxation Committee would both permanently reduce state taxes on new oil production from 11.5 percent to 9 percent.

One bill would cut the oil tax rate to 5 percent for the first two years of production for new horizontal wells in western North Dakota's Bakken formation. It is made up of shale as hard as a tombstone and is proving costly to drill, industry officials said.

"This play, as it stands now, even with these prices we're seeing today, is a marginal play. It's a challenge for the operators to keep their costs in control," said David Searle, a lobbyist for Marathon Oil Co. of Houston. Oil prices are presently hovering above $50 a barrel.

Marathon recently opened an office in Dickinson, and has long-term plans to drill 300 wells in western North Dakota. The company expected to spend $3.5 million to $4 million on drilling individual wells, but the cost has been closer to $6 million, Searle said during a committee hearing Wednesday.

The tax-cut measures have drawn resistance because of Tax Department estimates that it would mean $12.7 million less in oil tax collections over two years.

Dale Frink, chief engineer of the state Water Commission, said he worries about revenue losses for a state trust fund that is used for water development. Frink was the only person during Wednesday's hearings to speak against the oil measures.

Jeff Herman, the Bismarck regional land manager for Petro-Hunt LLC, said North Dakota's top tax rate of 11.5 percent was one of the nation's highest, and the state's oil normally sells for about $10 per barrel less than the prices commonly quoted on oil futures markets.

"This is a very competitive business. Dollars are being fought for, for all of the various states," Herman said. "I would strongly support something to bring that top rate down."

Ron Ness, president of the North Dakota Petroleum Council, and Robert Harms, president of the Northern Alliance of Independent Producers, said they believed the tax cuts could boost oil production enough to offset any revenue loss.

The financial impact to North Dakota's treasury is the equivalent of two oil wells, Ness said. About 40 drilling rigs are presently working in western North Dakota.

"Our … industry is going to invest hundreds and hundreds of millions of dollars," Ness said. "Asking the state to basically take a 1 percent risk on that investment over the next two years, to try and create a more attractive business climate, I think, is a reasonable approach."

The bills are SB2361 and SB2397.