Last Thursday marked the deadline for Gov. John Bel Edwards, D-Amite, to take action on HB 29 by Rep. Phillip DeVillier, R-Eunice, which passed both chambers in the recently adjourned Second Special Session of 2020.
Edwards vetoed the bill, which offered a limited severance tax exemption to oil companies for drilling new wells, working over shut-in wells, or taking over orphan wells.
“This legislation would have stimulated some critically needed economic activity in our state, and while it did not pass we remain hopeful and optimistic,” Mike Moncla, interim president of the Louisiana Oil & Gas Association said. “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. We look forward to that opportunity.”
In a news release, Moncla stated: Over the last three years the state’s severance tax revenues on oil have fallen 45%: From $328,000,000 in 2018, to $285,000,000 in 2019, and to only $180,000,000 (annualized) in 2020. That decrease is over $100,000,000 in just the last year. That decline is directly attributed to the number of wells that continue to be shut-in by the state’s oil and gas operators. Thousands of shut-in wells are currently bringing the state zero revenue, and that outlook will not change under the current severance tax structure. A six-month severance tax exemption would bring shut-in wells back into production, providing direct jobs and wages, as well as induced jobs, sales taxes, and other revenues that stem from economic activity.
“This is smart economic policy,” Moncla said. “After six months of producing, the state would then begin to reap the benefits of taxes on wells that would otherwise just be shut-in. Oil companies have shut-in 2,266 wells thus far this year. Louisiana has a total of 20,131 wells currently shut-in. Thousands of these shut-in wells are candidates to be worked over.”