Oil and gas revenue grew as a share of Louisiana's budget this year

10 23, 2013 by The Times-Picayune

Oil and gas industry taxes have made a slight comeback as a factor in the Louisiana state budget. Mineral revenue accounted for 14 percent of Louisiana's state funding in the last fiscal year, up from a low point of 7 percent in the late nineties.

This is hardly similar to the heyday of thirty years ago, when oil and gas bankrolled much of the state government. As the Legislative Fiscal Office pointed out, mineral revenue accounted for 42 percent of Louisiana's state budget in 1982.

Still, the strength of oil prices buoyed Louisiana's energy industry in 2012-2013, and possibly contributed to the state government's $162.9 million surplus in the last fiscal year. Strong oil prices meant more production in Louisiana, which in turn should mean more oil and gas taxes coming into the state coffers.

In 2012, Louisiana produced an estimated 4 million more barrels of oil than it did in 2010, according to Patrick Courreges, spokesman for Louisiana's Department of Natural Resources. "The price drives a lot of people to produce in areas that they wouldn't have before. A small, shallow rig -- it's now worthwhile to do it," he said.

While oil prices are the biggest factor, the expiration of certain tax exemptions have also contributed to the uptick in state mineral revenue. A large number of horizontal drilling wells are eligible for severance taxes for the first time, said Greg Albrecht, the Legislative Fiscal Office's chief economist.

Thanks to a law passed by the Louisiana state legislature in 1994, companies do not have to pay taxes on most horizontal drilling wells for the first two years they are in operation or until the well's expenses are recovered, whichever comes first.

This means that several of the wells that came online during the height of the Haynesville Shale natural gas boom from 2007 to 2010 had not been subject to state severance tax until recently.

Several people have been critical of the tax exemptions for horizontal drilling wells, claiming that the wells are mostly spent and far less productive by the time the state can start taxing them. Last December, the Pew Center of States reported that Louisiana lost $100 million in revenue annually because of the tax exemption for horizontal drilling wells.