State’s oil and gas industry disappointed by Edwards’ veto of severance tax exemption

    Louisiana’s oil and gas industry leaders expressed disappointment over Gov. John Bel Edwards’ veto of a bill that would’ve offered a limited severance tax exemption to oil companies for drilling new wells, working over shut-in wells, or taking over orphan wells. However, they plan on bringing the issue back to the table in just a few months.

    The governor on Thursday rejected House Bill 29 by State Rep. Phillip DeVillier, R-Eunice, which passed both chambers in the recently adjourned second special session of the Louisiana Legislature. 

    In a prepared statement, Mike Moncla, interim president of the Louisiana Oil & Gas Association, says the legislation would have stimulated critically needed economic activity in the state. Though it did not pass, he says the organization’s member base remains “hopeful and optimistic.”

    “We believe Gov. Edwards gave strong consideration to the merits of the issue, and it is our job over the next few months to illustrate to the governor, the Department of Natural Resources, and key legislators why this bill is so important,” Moncla says. “We look forward to that opportunity.”

    Over the past three years, the state’s severance tax revenues on oil have fallen 45%, from $328 million in 2018 to just $180 million annually in 2020. Industry leaders argue that the decline can be attributed to the thousands of wells that continue to be shut-in by Louisiana’s oil and gas operators, which bring the state zero revenue—an outlook that they say will not change under the current severance tax structure. (Oil companies have shut-in 2,266 wells so far this year, and Louisiana has a total of 20,131 wells currently shut-in.) 

    Instead, they contend, a six-month severance tax exemption would bring shut-in wells back into production, providing direct jobs and wages as well as sales taxes and other revenues that stem from economic activity. 

    More broadly, the bill would’ve incentivized the upstream portion of the industry to invest in the state, says Tyler Gray, president of the Louisiana Mid-Continent Oil and Gas Association, who helped craft the original legislation and intends to bring the issue back to the Legislature before its next regular session in the spring.

    “It’s hard to compete with other states that have greater oil production,” Gray says, “but we’re happy to work with whomever we can—the governor, lawmakers, whomever—to find some middle ground and bring something else forward that’s workable.”