Republican Gov. Bobby Jindal told members of the Louisiana Mid-Continent Oil and Gas Association (LMOGA) Thursday that he would veto any bill to repeal or lower severance tax exemptions for horizontal drilling, which would keep producers operating in the Haynesville Shale.
But despite Jindal's support, LMOGA president Chris John said lawmakers could bypass the governor's veto threat and enact a resolution at any time to suspend the exemptions for one year, which some say would help chip away at the state's $1.6 billion budget shortfall.
"That is our biggest threat," John told NGI's Shale Daily on Monday. "We certainly feel good about [the governor's] words, but we are very concerned about this issue."
John said the Louisiana legislature -- which convenes April 25 -- would only require a simple majority in the state House of Representatives and Senate to pass a resolution to suspend the exemptions. A full-fledged bill, however, would require a two-thirds vote for passage.
"That's unlikely, because [repeal supporters] don't have the votes and the governor would veto it," he said. "What we're most concerned about is a resolution. We are on this like a laser beam."
John said Jindal -- the keynote speaker during Thursday's LMOGA annual meeting in New Orleans -- cited Legislative Fiscal Office figures that estimate the oil and gas industry saves $220 million annually in severance taxes for the first 24 months a well produces or until it is paid out. He added that the exemptions -- first enacted in 1994 -- cover horizontal drilling in the entire state, but have proven especially beneficial in the Haynesville Shale play.
"It was a way back then to try to incentivize that technology, that way of extracting," John said of the 1994 law. "The problem is that because the Haynesville Shale is very deep, it is much more expensive to drill a well there than it is to drill a Barnett well or an Eagle Ford well. This incentive makes it economically beneficial and viable for a company to do it. Without it, Haynesville Shale will dry up and you will see a mass exodus of some of those rigs to South Texas and the Eagle Ford."
John said the Legislative Fiscal Office and some legislators have made several public comments about possibly passing a resolution.
"It's been brought to the public eye about this being a revenue raising measure," John said. "This was specifically named as a $220 million opportunity by a bipartisan group of folks that frankly are only brought together by the budget cuts."
John also cited a recent study by Loren Scott of Loren C. Scott & Associates, which was commissioned by the Louisiana Oil and Gas Association. The report said the state earns $367.7 million from the tax exemptions because of the commerce it brings in (see Shale Daily, March 25).
"It would cost the state several hundred million dollars in taxes and employment and sales taxes if they were to repeal it," John said. "If the oil and gas companies go away, they will cost the state money."