A photo of an orphaned oil well in St. Martin Parish taken by the Louisiana Department of Resources in 2010. (Louisiana Department of Natural Resources)
The Louisiana House of Representatives unanimously passed a bill to exempt production of oil from abandoned wells from severance tax Tuesday. Rep. Jean-Paul Coussan (R-Lafayette) described House Bill 662 as a win-win for the industry and the environment.
But environmental advocates disagree. The executive director of Healthy Gulf, Cynthia Sarthou, called the bill a “real gift to the oil industry.”
The Department of Natural Resources has designated more than 4,000 oil wells in the state as orphaned or abandoned. Wells typically become abandoned when a small oil company buys a previously drilled well and goes bankrupt without properly plugging and abandoning that well. When this happens, the liability falls to the state, which uses funding generated from a fee on oil and gas production to pay for the cleanup costs. But the program lacks adequate funding, according to a 2014 Louisiana Legislative Auditor report.
Rep. Coussan’s bill would incentivise new oil producers to come in and take over the liability of the well by eliminating the severance tax on oil production, which is typically 12.5%. The tax exemption would last for two years or until production of the well surpasses the cost of operation, whichever comes first.
The fiscal note on the bill is zero because producers don’t usually take over liability on abandoned wells, said Gregory Brian Upton, Jr., an associate research professor at the Louisiana State University Center for Energy Studies, who testified on the bill when it was introduced in the House Committee on Ways and Means last week.
But when orphan wells are brought back into production, the bill would result in a loss of severance tax into the state general fund, according to the fiscal note. “In short, taxpayer funded clean up of orphan wells,” Sarthou said.
As the bill was discussed in the House Chamber Tuesday, Rep. Larry Frieman (R-Abita Springs) sarcastically asked how he could avoid taxes on a new business he wanted to open. In response, Rep. Coussan said the bill would benefit the environment by incentivizing small companies to take over wells and, eventually, plug and abandon them properly.
“These are not major oil companies that are going to be taking over these wells. This will be the McCormicks of the world,” he said, referring to Rep. Danny McCormick (R-Oil City), who owns M&M Oil. A similar bill by Sen. Bret Allain (R-Franklin) was approved by the Louisiana Senate last month.
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