Changes to Louisiana law that would tax the lateral portions of horizontal wells have the state's producer community ready to fight, but parish tax assessors say laterals should have been taxable all along.
The Louisiana Tax Commission in September approved a new rule including laterals as subsurface oil and gas property on which assessments can be made. The rule is to take effect next year.
But not if Don Brigs, president of the Louisiana Oil & Gas Association (LOGA) has anything to say about it. "No tax commission has ever done what these fellows have done," Briggs told NGI's Shale Daily. "We're just going to challenge it."
Briggs maintains that the change would more than double the 2010 established tax rates on wells and seriously impede ongoing development of the Haynesville Shale in North Louisiana.
The Louisiana Assessors Association (LAA) says well laterals are equipment and improvements that are fully taxable. Rodney Kret is director of mineral appraisals for Fort Worth, TX-based Pritchard & Abbott Inc., a consultant to the LAA.
"For whatever reason in the past, those particular lateral segments have just not been added as part of 'replacement cost new' because of the fact that when you're going horizontal, you're not going any deeper, and there was some verbiage in the rules and regulations that spoke to vertical depth. There was some confusion there as to whether when you're going horizontal that total drill depth should count in the [total well] depth," Kret said.
And the Tax Commission says it should. However, Briggs maintains that because the materials used in laterals are not recoverable -- as are some of those used in the vertical portion of the well -- the laterals should not be taxed.
Kret counters that "just because a piece of a property may be recoverable or not at some point in the far-off future does not mean that the cost involved in installing that piece of equipment should not be a taxable item per Louisiana law. That's where I think LOGA is missing the boat. It's not just recoverable materials only that lead to value. Installation cost is always part of replacement cost new, which is something that appraisers will always look at when determining fair market value of a property."
The Tax Commission is expected to publish its rule in the Louisiana Register Dec. 20. Briggs said after that an appeal will be filed.