Oil & Gas News

Oil From Abandoned Wells Would Be Tax Exempt Under Louisiana House-Passed Bill

abandoned

By: Sara Sneath – The New Orleans Advocate – The Louisiana House of Representatives has unanimously passed a bill to exempt oil production from abandoned wells from severance tax Tuesday. Rep. Jean-Paul Coussan, R-Lafayette described House Bill 662 as a win-win for the industry and the environment, but environment advocate Cynthia Sarthou, executive director of Healthy Gulf, called it a “real gift to the oil industry.”

The Department of Natural Resources has designated more than 4,000 oil wells in the state as orphaned or abandoned. Wells typically become abandoned when a small oil company buys a previously drilled well and goes bankrupt without properly plugging and abandoning it. When this happens, the liability falls to the state, which uses revenue from a fee on oil and gas production to pay for the cleanup. But the program lacks adequate funding, according to a 2014 legislative auditor’s report.

Abandoned

Louisiana’s 14 coastal parishes have approximately 27,400 abandoned gas wells on land, according to a new study from LSU scientist Eugene Turner. Image from PLOS ONE

Coussan’s bill would incentivize new oil producers to take over the liability of the well by eliminating the severance tax on oil production, which is typically 12.5%. The tax exemption would last for two years or until production of the well surpasses the cost of operation, whichever comes first.

The fiscal note on the bill is zero because producers don’t usually take over liability on abandoned wells, said Gregory Brian Upton, Jr., an associate research professor at the Louisiana State University Center for Energy Studies, who testified on the bill when it was introduced in the House Committee on Ways and Means. 

But when abandoned wells are brought back into production, the bill would result in a loss of severance tax into the state general fund, according to the fiscal note. “In short, taxpayer-funded clean up of orphan wells,” Sarthou said.

As the bill was discussed in the House on Tuesday, Rep. Larry Frieman, R-Abita Springs, sarcastically asked how he could avoid taxes on a new business he wanted to open. In response, Coussan said the bill would benefit the environment by incentivizing small companies to take over wells and, eventually, plug and abandon them properly.

These are not major oil companies that are going to be taking over these abandoned wells. This will be the McCormicks of the world,” he said, referring to Rep. Danny McCormick, R-Oil City, who owns M&M Oil.

similar bill by Sen. Bret Allain, R-Franklin, was approved by the Senate in April.

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