DIGEST
The digest printed below was prepared by House Legislative Services. It constitutes no part of the
legislative instrument. The keyword, one-liner, abstract, and digest do not constitute part of the law
or proof or indicia of legislative intent. [R.S. 1:13(B) and 24:177(E)]
HB 107 Original 2016 First Extraordinary Session Hunter
Abstract: Changes the severance tax exemption for production of oil and natural gas from
horizontally drilled wells and horizontally drilled recompletion wells by reducing the
maximum percentage of exemption and dollar thresholds for the extent of the exemption.
Present law imposes a tax on natural resources severed from the soil or water based upon quantity
or value of the products or resources severed. The severance tax rate for oil is 12.5% of value. The
severance tax rate for natural gas is a minimum of 7ยข per 1,000 cubic feet but is subject to an annual
rate adjustment based on the prior year's price of natural gas.
Present law provides for the suspension of a percentage of the levy of severance tax on production
from a horizontally drilled well or horizontally drilled recompletion well for a period of 24 months
or until payout of the well cost is achieved, whichever comes first, commonly known as the
"horizontal well exemption".
Present law, for purposes of the exemption, defines "horizontal drilling" as high angle directional
drilling of bore holes with 50 to 3,000 plus feet of lateral penetration through productive reservoirs,
and "horizontal recompletion" shall mean horizontal drilling in an existing well bore.
Present law for the severance tax exemption on oil production from horizontally drilled wells and
recompletion wells commencing on or after July 1, 2015, establishes tiered values for the exemption
based upon Crude Oil Spot Prices in nominal dollars, and West Texas Intermediate Spot prices per
barrel as adopted by the Energy Information Administration (EIA) and published in the Annual
Energy Outlook (AEO) report. The amount of the exemption is as follows:
(1)No severance tax if the price of oil is at or below $70 per barrel.
(2)The tax rate is reduced by 80% if the price is above $70 and at or below $80 per barrel.
(3)The tax rate is reduced by 60% if the price is above $80 and at or below $90 dollars per
barrel.
(4)The tax rate is reduced by 40% if the price is above $90 and at or below $100 per barrel.
(5)The tax rate is reduced by 20% if the price is above $100 and at or below $110 per barrel.
(6)There is no exemption if the price of oil exceeds $110 per barrel. Proposed law changes present law by reducing the percentages of exemption and the dollar value
thresholds as follows:
(1)If oil is at or below $70 per barrel, the exemption is changed from 100% to 80%.
(2)If oil is above $70 per barrel and at or below $80 per barrel, the exemption is changed from
80% to 60%.
(3)If oil is above $80 per barrel and at or below $90 per barrel, the exemption is changed from
60% to 40%.
(4)If oil is above $90 per barrel and at or below $100 per barrel, the exemption is changed from
40% to 20%.
(5)The price level at which there is no exemption is reduced from $110 per barrel to $100 per
barrel.
Present law for the severance tax exemption on natural gas production from horizontally drilled
wells and recompletion wells commencing on or after July 1, 2015, establishes tiered values for the
exemption based upon the Natural Gas Spot Price at Henry Hub, nominal dollars per million BTU,
adopted by the EIA and published in the AEO report. The amount of the exemption shall be as
follows:
(1)No severance tax if the price of natural gas is at or below $4.50 per million BTU.
(2)The tax rate is reduced by 80% if the price is above $4.50 per million BTU and at or below
$5.50 per million BTU.
(3)The tax rate is reduced by 60% if the price is above $5.50 per million BTU and at or below
$6.00 per million BTU.
(4)The tax rate is reduced by 40% if the price is above $6 per million BTU and at or below
$6.50 per million BTU.
(5)The tax rate is reduced by 20% if the price is above $6.50 per million BTU and at or below
$7 per million BTU.
(6)There is no exemption if the price of natural gas exceeds $7 per million BTU.
Proposed law changes present law by reducing the percentages of exemption and the dollar value
thresholds as follows:
(1)If the price of natural gas is at or below $4.50 per million BTU, the exemption is reduced
from 100% to 80%. (2)If the price is above $4.50 per million BTU and at or below $5.50 per million BTU, the
exemption is reduced from 80% to 60%.
(3)If the price is above $5.50 per million BTU and at or below $6 per million BTU, the
exemption is reduced from 60% to 40%.
(4)If the price is above $6 per million BTU and at or below $6.50 per million BTU, the
exemption is reduced from 40% to 20%.
(5)The price at which there is no exemption is reduced from $7 per million BTU to $6.50 per
million BTU.
Present law and proposed law are repealed Dec. 31, 2020, thereby eliminating the exemption from
severance tax on oil and natural gas.
Applicable to production occurring on and after July 1, 2015. Sections 1, 3, and 4 of this Act are effective April 1, 2016.
Section 2 of this Act is effective December 31, 2020.
(Amends R.S. 47:633(7)(d); Repeals R.S. 47:633(7)(d))