An initiative to tax the horizontal segments of natural gas wells was stopped in its tracks by Louisiana House and Senate committees Monday when lawmakers refused to go along with the idea promoted by the Louisiana Tax Commission.
The House and Senate committees on natural resources sided with the gas industry in rejecting the tax on the horizontal segments of wells. It was a measure that the Louisiana Oil & Gas Association (LOGA) had lobbied hard against.
The commission last September approved a rule including laterals as subsurface oil and gas property on which assessments can be made. LOGA President Don Briggs said the tax would more than double the 2010 established tax rates on wells and seriously impede ongoing development of the Haynesville Shale in North Louisiana (see Shale Daily, Nov. 30, 2010).
"That was a good thing," Briggs said Tuesday of the tax's failure.
"They were wrong. They were putting a value on something that doesn't exist. In Louisiana the ad valorem value on downhole equipment is for downhole, tangible equipment. "[It can be recovered after the well's drilled] based on fair market value. There's no pipe in the hole that's recoverable on the lateral. The tax commission members...felt that it had value because of the minerals in the ground. The problem with that in Louisiana law [is] they cannot tax minerals other than the severance tax, which we have, and so that makes it wrong and illegal [to tax the laterals]."
The Louisiana Assessors Association had maintained that well laterals are equipment and improvements that should be fully taxable.
Greg Albrecht, chief economist for the Louisiana Legislative Fiscal Office, had claimed that the state's mineral revenue would decrease by tens of millions of dollars over the next four years because horizontally drilled wells are exempt from severance taxes for two years or until the cost of the well is recovered (see Shale Daily, Feb. 10).