Reduces the rate of severance tax on oil produced from incapable wells under certain conditions (Item #61) (OR -$2,436,000 GF RV See Note)
The bill prioritizes support for the energy sector, particularly oil producers struggling with lower market prices. By establishing a tax incentive for incapable wells, it aims to alleviate some financial burdens on producers and retain oil production levels even when prices are low. The goal is to ensure these wells remain operational during difficult economic times in the oil industry, thereby supporting local economies and jobs reliant on oil production in Louisiana. However, this also raises questions on state revenue, as reduced tax rates could lead to lower state income from severance taxes during the effectiveness period.
House Bill 28 aims to reduce the severance tax rate for oil produced from certified incapable wells in Louisiana. Under this bill, if the average price of oil falls below $75 per barrel, the severance tax rate for oil from these wells will be reduced significantly from the standard rate of 12.5%. Specifically, it introduces a provision for a tax rate of just 6.25% for incapable wells which are defined as producing less than 25 barrels of oil daily and having at least 50% of their production being saltwater. This legislation is effective from January 1, 2021, through December 31, 2029, and includes requirements for timely reporting to qualify for the reduced tax rate.
Support for HB 28 is largely in the energy industry, as stakeholders view it as a necessary step to maintain operations amid volatile oil prices. Proponents argue that it provides essential relief to struggling oil producers, thus safeguarding jobs and preventing wells from being abandoned. However, critics express concern that the bill may lead to significant revenue loss for the state and question its long-term viability as it could encourage over-reliance on depleted or marginal wells. They fear this could distort market dynamics, leading to unsustainable practices in oil production.
Notable points of contention surrounding HB 28 include the balance of economic support for oil producers versus the financial implications for state resources. Critics also argue about the potential for the bill to create loopholes that could allow less scrupulous operators to benefit unduly from the severance tax reductions. Additionally, the effectiveness of such tax relief to actually sustain production at incapable wells remains debated, with questions about whether it truly supports an industry that needs to evolve rather than continue operating under outdated economic models.