Smoke rises from the Valero Oil refinery in Meraux on June 19, 2020. (Wes Muller/Louisiana Illuminator)
The Louisiana Legislature passed a bill Wednesday that would give an estimated $48 million in tax exemptions to the oil and gas industry.
House Bill 29, introduced by Rep. Phillip DeVillier, R-Eunice, would suspend a 12.5 percent severance tax that companies pay on oil and gas extracted from abandoned orphan wells, newly-drilled wells, or old shut-in wells that are newly enhanced to produce again. The tax exemptions will last anywhere from six to 24 months or until the company recovers the amount it spent to drill or enhance the well, whichever comes first.
An original version of the bill that passed the House of Representatives would have cost the state three times as much money because it offered a longer, more generous tax break with a sunset of five years, meaning the program would last until 2025. The fiscal note on that version estimated a cost of $157 million to taxpayers.
The Senate, however, thought that legislation was too giving. It amended the bill in an effort to decrease that fiscal impact. The amendments reduced the sunset provision to three years and offered tax amendments of six months for newly-enhanced wells, 12 months for newly-drilled wells, and 24 months for orphaned wells.
The House adopted the Senate amendments and voted 69-17 on final passage of the bill.
This effectively reduced the burden on taxpayers to about $48 million, according to the bill’s fiscal note, though the legislative fiscal office noted that “specific estimates of revenue loss are highly uncertain at this time due to the effects of the Covid-19 virus pandemic on economic activity in general and oil prices in particular.”
The legislation was backed by the Louisiana Mid-Continent’s Oil and Gas Association.
Defending the bill in the House chambers Wednesday, DeVillier said the tax credits will hopefully create jobs in the oil and gas industry. The bill, however, contains no job-creation requirements.
Rep. Mandie Landry, D-New Orleans, asked DeVillier if he had any experts such as economists or professors testify in favor of the bill. DeVillier said he had “someone from the industry” testify, referring to the oil and gas lobby, as well as a parish president who testified that it could create jobs. DeVillier then criticized the legislature’s economists who wrote the fiscal note.
“They only looked at one part to create this fiscal note,” DeVillier said. “And that was the actual severance tax collections.”
“It sounds like the answer is ‘No,'” Landry said in response.
The fiscal note also cautioned that research by the LSU Center for Energy Studies indicates the tax exemptions will do little to spur more oil and gas production in the state.
“A statistically significant response of total production to prices in Louisiana is not observed in the long run,” the note states. “A state unilaterally changing severance tax rates may exhibit greater production response, but research on this case still finds the response to be small. Thus, the bill is likely to result in revenue losses.”
The bill will head to Gov. John Bel Edwards for his approval or veto.
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