Oil and gas producers look to legislature for severance tax lifeline


More than half of the participants in a Louisiana Oil & Gas Association survey of member companies say they will likely file for bankruptcy, despite a modest rebound in oil and gas prices since the April 20 market crash.

Equally troubling, 23% say they are making significant cuts to their workforce and 77% of operators say they are shutting down production. LOGA released the survey data on Monday.

To prevent a tsunami of business failures, some state legislators are pushing for a temporary 80% reduction in state severance taxes. LOGA President Gifford Briggs expects a proposal to be introduced in committee this week as an addendum to legislation previously filed by State Rep. Phillip DeVillier (R-Eunice).

Should the bill and addendum pass, the tax reduction would become effective July 1 and keep some companies from careening off a fiscal cliff, he says. It would follow an April directive by Gov. John Bel Edwards to delay collection of the taxes until June 25. “While the existing bill seeks to modestly lower the rate for the long term—we have the highest severance tax rate in the nation—the amendment would provide more substantial relief for one year,” Briggs adds.

In response to historically low prices in the oil and gas market, the temporary tax reduction would “kick in” whenever oil drops below $30 a barrel or natural gas below $1.90 MMBtu. That would keep some companies from shutting down production altogether. “The current 12.5 percent severance tax means nothing if production ceases—12.5 percent at zero production is zero,” Briggs says.

“The Legislature recognizes the situation that industry is in right now. If we can lower the rate to where people can continue production, continue sending out royalty checks and paying some severance, it’s a win for the state.”

LOGA hopes a separate bill introduced by Bob Hensgens (R-Gueyden) will provide additional relief by curtailing the proliferation of coastal lawsuits. “That’s more important now more than ever as companies struggle to make payroll and take care of their workforce,” Briggs says.

Current projections by some economists forecast oil to hit a $30 ceiling in 2021—irrespective of COVID-19. “We’re dealing with unprecedented times,” he adds. “The real question is how fast will demand get back up. Even if things return to something closer to normal, it will take a few months to eat through the excess storage. Of course, that carries us right back into the next flu season.”

In the meantime, oil and gas producers are becoming increasingly pessimistic. LOGA’s recent survey revealed that 97% of respondents expressed moderate or extreme concern about the future of the industry. Of those who received EIDL (Emergency Injury Disaster Loan) money, 72% said the funds would not help them avoid layoffs.

Among the other LOGA survey findings:

  • Members have been forced to reduce 23% of their Louisiana workforce already
  • 77.5% of operators have already begun taking steps to shut-in production
  • 97% are moderately or extremely concerned about the future of the industry
  • 51.35% said bankruptcy likely
  • 34% applied for EIDL funds, of those only 25% received the funds they expected
  • Of those who received funds, 46.67 indicted they were not enough to help them stay in business