Replies to This Discussion

Permalink Reply by Spring Branch,mineral owner on December 18, 2011 at 16:55

Make that two years or well payback, whichever occurs 1st.

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Permalink Reply by RC on January 3, 2012 at 4:54

Hello Spring Branch

I am confused about severence taxes. Shell is withholding severence tax from our well in Pelican while Encana (their partner on the well) does not. Can you provide a little insight for me on this subject?

 

Thanks, RC

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Permalink Reply by essay on December 18, 2011 at 17:11

declining activity in the southern parishes has nothing to do with the horizontal exemption.  if there were a hugely productive shale like the haynesville in lafourche they'd be drilling in lafourche.  absolute rhetorical nonsense.

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Permalink Reply by Hopeful About Natural Gas on December 18, 2011 at 19:43

Essay,

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Actually, page 2 of the article gives another reason for the decline in tax revenues from South Louisiana, all the "Legacy Lawsuits" ...

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"The analysts didn't present the entire story, however. Many oil-and-gas operators are boycotting south Louisiana inland drilling due to the rash of “legacy” lawsuits being filed. By drilling in other states or on previously undeveloped leases in shale zones, there is less likelihood of operators being hit with these prohibitively expensive lawsuits. Bringing about a reasonable legislative solution to the legacy lawsuit problem could positively affect state revenue collections going forward. It should be a priority for Gov. Jindal and the Legislature."

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Here is another article about Legacy Lawsuits in South La from the Oil and Gas Assoc (LOGO)

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http://loga.la/presidentsarticles/?cat=18

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If you add the problem of legacy lawsuits and the fact that North Louisiana has a two year window to recover costs then it's not hard to see why tax revenues are declining in certain areas or why production is moving from one place to another.  We certainly saw business flee California partly because of all the lawsuits and California was still a good place to make money.

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But, I don't work in the field so this is all new to me.

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Permalink Reply by essay on December 18, 2011 at 20:43

sounds like sour grapes to me, the severance tax was only mentioned because it's nice fat low hanging fruit that south louisiana politicians want on the table for the negotiations.  so south louisiana gets unfettered benefit from o&g exploration that was also subsidized by the government and conducted in a far less environmentally aware manner than what is going on in north louisiana currently... clearly a win/win for that part of the state, now that we actually have some revenue up here, we can help them clean up their mess.  nice.

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Permalink Reply by essay on December 19, 2011 at 13:45

politics ain't exactly a pillowfight at the local sorority house.  i have family down south it's not personal.

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Permalink Reply by Hopeful About Natural Gas on December 19, 2011 at 11:08

Personal income tax revenues COULD also include the big bonus payments of a couple of years ago.  That must have cut income somewhat, but I don't know by how much.

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I,ve always thought the Haynesville shale and others like it would be a perfect model to study all those assumptions about jobs and taxes. Just track it and see what shales out in a few years.  Will the schools be better?  How about the roads and water supplies?  It will take a few years to get good averages of these measurements.

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Yeah, I want to know if past years included the bonus money - and drilling has been in a big slump all over LA, so sure, taxes would be down. I know zero about taxes exceot that my taxes are too high but yours are too low :)

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have a good holiday, sesport,

- dang me, hang me

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Permalink Reply by Hopeful About Natural Gas on December 20, 2011 at 8:00

Bizarre how the news media cannot located these facts but you can - like a 50% drop in the 2010 tax rate.  That would lower revenues for sure.  Good sleuthing.

and, I continue to be interested in the larger economic picture: does the rising tide (shale gas) really raise all boats (communities)?  The Haynesville and other shale rushes around the US should provide us with objective data on that question.

I,ve always thought the Haynesville shale and others like it would be a perfect model to study all those assumptions about jobs and taxes. Just track it and see what shales out in a few years.  Will the schools be better?  How about the roads and water supplies?  It will take a few years to get good averages of these measurements.

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Permalink Reply by essay on December 20, 2011 at 9:17

red river parish now pays teachers a whole lot more than they did before the shale, and it's tied to tax receipts, so that's way up.  i've read that we were the 4th highest ranked parish in terms of teacher qualification recently.  I have not heard a peep about anyone's water quality declining, but coushatta didn't exactly have great public water supplies to begin with anyway... and now we apparently have money to work on upgrades, judging by all of the activity in town lately.  lots of people on well water out in the parish, too.  road degradation has been an issue in certain places where the quality was even worse than the already poor average condition in the area.

edit: also bear in mind that the severance tax rate is by law figured on prices.  this legislation was passed before the shale boom.  now that we're prospering disproportionately in comparison to south louisiana, that shoe is on the other foot and some want the rules changed.  again.  we'll see, i guess.  louisiana politics being what they are nothing would surprise me anymore.

fact is, i think this shale boom has sheltered not only NW La, but the state as well, to a lesser degree, from the Great Recession.  now that the activity is declining, along with prices at the wellhead, we're starting to feel the effects more and more

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Permalink Reply by Dion Warr, CPL on December 20, 2011 at 12:10

Sesport (II):

Severance tax on gas is computed using a "trailing average" method of computation and is adjusted for July of each year (fiscal year).  Thus FY 2009 taxes would have incorporated relatively high 2008 values.  FY '10 taxes would have taken into account the rapid retreat in gas prices from 2008 to 2009.  Also, the tax computation is subject to a floor of $.07/mcf:

 

From R. S. 47:633, Part 9 (d)(i):

 

The gas tax rate provided in Subparagraph (a) of this Paragraph shall be adjusted annually on July first for the ensuing twelve calendar months as hereinafter set forth but shall never be less than seven cents per thousand cubic feet. On or before April 30, 1991, and annually thereafter, the secretary shall determine, using the "gas base rate adjustment" as hereinafter provided, the new gas tax rate for the twelve calendar months beginning July 1, 1991, and respectively for each twelve-month period beginning annually thereafter. The new gas tax rate shall be the rate provided in Subparagraph (a) of this Paragraph multiplied by the gas base rate adjustment. The "gas base rate adjustment" shall be determined by the secretary of the Department of Natural Resources. The "gas base rate adjustment" for the applicable twelve-month period is a fraction, the numerator of which shall be the average of the New York Mercantile Exchange (NYMEX) Henry Hub settled price on the last trading day for the month, as reported in the Wall Street Journal for the previous twelve-month period ending on March thirty-first, and the denominator of which shall be the average of the monthly average spot market prices of gas fuels delivered into the pipelines in Louisiana as reported by the Natural Gas Clearing House for the twelve-month period ending March 31, 1990 (1.7446 $/MMBTU). For the twelve-month period ending March 31, 2003, the monthly average gas prices used in making the numerator of the "gas base rate adjustment", the average gas prices for the months April, 2002 through September, 2002 shall be the monthly average spot market price of gas fuels delivered into the pipelines into Louisiana as reported in the Natural Gas Clearing House, and the average gas prices for the months October, 2002 through March, 2003 shall be the New York Mercantile Exchange (NYMEX) Henry Hub settled price on the last trading day for the month, as reported in the Wall Street Journal. The secretary of the Department of Revenue shall publish the "gas base rate adjustment" and the "gas tax rate", as determined under this Subparagraph in the official journal of the state of Louisiana by May first of each year and shall provide the "gas base rate adjustment" and the "gas tax rate" to affected producers by written notice mailed sixty days prior to the effective date thereof, but failure to make such publication or to give such notice shall not be a condition for the new gas tax rate which shall nevertheless be effective.

 

In 2003, we moved from the index supplied by Natural Gas Clearing House (then Dynegy) to NYMEX / Henry Hub pricing.

 

Pair this information up with the concept that a large majority of these completed wells are still within their two-year exemption window, and the fact that over a two-year period these wells will flow at a rate of approximately 10 - 15% of their initial flow rates (not accounting for choke-restricted wells), in current terms, a large portion of the stream from these wells will be exempt from taxation.

 

IMO, I don't see how the current HA exemptions are sustainable after the initial discovery phases have been completed and major infrastructure improvements are put into place.  The large initial job growth numbers and associated economic activity have started to level off and in some cases decline along with the rig counts.

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Permalink Reply by essay on December 20, 2011 at 13:52

i can respect that opinion but if we're going to look at the horizontal exemption then we're certainly going to have to look at the rest of the seven billion or so we spend on other exemptions.  i agree that we should really look at eliminating some of this stuff.  we spend about as much giving hollywood tax breaks as we do horizontal drilling, and even those two items are a tiny fraction of the total.

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Permalink Reply by essay on December 20, 2011 at 23:27

sure it's public record.  http://revenue.louisiana.gov/forms/publications/TEB%282010%29WEB.pdf  the two combined are approx. 5% of the total exemption budget, each about 2.5%.

however, the gas horizontal exemption only accounts for a little less than half of the total severance revenue loss, and the gas horizontal loss is expected to be halved next year, and subsequently decline to about 1/3 of the total severance loss.  in comparison, the motion picture "investor" credit has doubled in the last two years.

sales tax exemptions alone account for about $3.9 billion, over 58% of the entire exemption budget.

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