John Bel Edwards signs ‘orphan’ well tax exemption into law

Program uses taxpayer money to clean up mess left by oil industry, critic says

By: - June 22, 2021 5:50 pm
Governor signs orphan well tax exemption into law

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)

Gov. John Bel Edwards on Monday signed into law a program to help fix “orphan” oil wells by offering a tax exemption on oil produced from abandoned wells that are reworked to produce again. Lawmakers passed the bill in hopes of resolving the ongoing problem of leaky unsealed oil wells across Louisiana, but one critic said it simply hands over taxpayer money to oil companies so that they might clean up a mess made by other oil companies.

Senate Bill 171, sponsored by Sen. Bret Allain (R-Franklin), allows oil and gas operators to apply to the Louisiana Department of Natural Resources for a severance tax exemption on oil extracted from wells that have been orphaned — meaning a well with no reported production — for at least 12 months.

In addition to being an eyesore, orphan wells pose significant environmental risks, often by leaking gas or other pollutants that can contaminate the air and water if they are left unsealed.

Louisiana’s current severance tax is 12.5% of the resource’s value. The rate is 6% on wells that have been inactive for at least 24 months and 3% for wells that have been inactive for at least 60 months.

According to the legislation, an operator will be able to keep the first three months of tax payments that would otherwise be due, after which they will remit monthly tax payments to the Department of Revenue, which will credit the site-specific trust account of the individual orphaned oil field site. The money in those accounts will be monitored by the Department of Natural Resources and reserved for restoring the respective oil wells.

Site-specific trust accounts (SSTAs) are not a new idea. The Department of Natural Resources has been using them as part of the Oilfield Site Restoration Fund to address the growing problem of orphaned wells, of which there are now more than 4,300 across Louisiana. The new legislation requires SSTAs for operators to receive the orphan well tax exemption. 

The state has been able to seal an average of 46 wells per year with the money in the restoration fund, which relies on a fee of 1.5 cents per barrel of oil produced and less than a half-penny for every thousand cubic feet of gas produced, according to the Department of Natural Resources.

The Department of Natural Resources has previously touted the restoration fund as an asset that uses no taxpayer money, but this legislation changes that. 

In an email interview June 9, Cynthia Sarthou, executive director of the nonprofit Healthy Gulf, said SB 171 is ultimately an instrument that uses taxpayer dollars to clean up a mess made by oil companies.

“It still allows a company to produce oil from a well and essentially use taxpayer dollars (payments that would otherwise have been tax revenues) to clean up abandoned oil well sites,” Sarthou said. “It is essentially a way to dedicate tax payment to clean up.”

Speaking on the House floor in support of the legislation on June 9, Rep. Jean-Paul Coussan (R-Lafayette) said, “We’re trying to get operators to take over the liability and clean up these wells, and this is the incentive we figured out to do it and to get the wells cleaned up.”

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Wesley Muller
Wesley Muller

Wes Muller traces his journalism roots back to 1997 when, at age 13, he built and launched a hyper-local news website for his New Orleans neighborhood. In the following 22 years since then, he has worked as a journalist for the Times-Picayune in New Orleans, the Sun Herald in Biloxi, WAFB-9News CBS in Baton Rouge, and the Enterprise-Journal in McComb, Mississippi. Much of his work has involved reporting on First Amendment issues and watchdog coverage of municipal and state government. He has received several honors and recognitions, including McClatchy's National President's Award, the Associated Press Freedom of Information Award, and the Daniel M. Phillips Freedom of Information Award from the Mississippi Press Association, among others. Muller is a New Orleans native, a Jesuit High School alumnus, a University of New Orleans alumnus, a veteran U.S. Army paratrooper, and an adjunct English teacher at Baton Rouge Community College. He lives in Ponchatoula, Louisiana, with his teenage son and his wife, who is also a journalist.

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