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Permalink Reply by Skip Peel - Mineral Consultant on October 4, 2016 at 3:13

As Louisiana elected officials ponder options to change the tax structure and address chronic deficits, the severance tax should be on the table along with other issues relating to the O&G industry.  12 1/2 percent on capable oil is far too high and impacts operating companies that already face significant economic challenges.  If we want the jobs created by exploration and production and the revenue for mineral owners that it creates, the tax structure has to change.  As usual the devil will be in the details but a new taxing structure that recognizes and addresses the extreme difference in how the industry operates today compared to just ten years ago is an opportunity to make a  number of improvements.

The horizontal well and deep well tax incentives were created when both types of wells were rare.  Now they are the norm so get rid of them.  Shift the tax burden from operating companies to the down stream segments of the industry.  Operating companies are struggling, the end users of petroleum products are experiencing a boom from low feed stock prices.  Lower the severance tax to something low single digits, say 2%.  Raise or institute new taxes on the other industry segments.  It should always be the goal of elected officials to create the lowest tax rates across the greatest number of tax payers as ultimately consumers, their constituents, will pay the tax. Taxes get short shrift in politics because no one likes them however any rational person knows that they are essential not only to financing government and public infrastructure but to quality of life.  For example any review of taxes and fees associated with the O&G industry should take into an account a far too large backlog of orphan wells in need of proper abandonment.

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