BATON ROUGE – A House bill that Louisiana oil and gas companies saw as a way to revive their ailing industry was vetoed Wednesday by Gov. John Bel Edwards, who pointed to what he said were shortcomings in its severance tax exemptions.
House Bill 29, which was passed in the recent legislative special session, contained a number of technical problems that would have resulted in uncertainties for gas and oil well operators and more administrative burdens for state agencies, Edwards said in his veto message. The idea behind the bill was to temporarily cut severance taxes to provide incentives for firms to reopen wells to generate new, high-paying jobs.
“We're disappointed that the governor didn't see value in what we consider something that would have created some (economic) activity for our state,” Mike Moncla, interim president of the Louisiana Oil and Gas Association, told the Louisiana Record. “We think it was a real opportunity missed.”
The governor also noted that HB 29 was passed during a special session that had been designated to deal with the COVID-19 crisis and hurricane recovery. A plan to provide severance tax exemptions could be better debated and evaluated during the regular legislative session in the spring of next year, he said.
“It’s something that we think we will be able to run again and get passed,” Moncla said. “I think we can work with this governor. This special session wasn’t the right venue to do it – which was part of his reason for vetoing it.”
Among the problems with the bill that Edwards identified were wording issues that would have excluded “recompleted wells” from getting the tax exemptions. The bill also lacked a requirement that well operators hire Louisiana residents whenever possible for new jobs that open up in the industry, he said.
Moncla stressed that Louisiana oil and gas wells have been struggling for the past six years before being hammered by the coronavirus pandemic. In 2014, severance tax funds from oil and gas wells in Louisiana totaled $686 million, he said, but the total has fallen year after year since then.
From January to October of this year, the annualized revenue from the tax is expected to be only $180 million, according to Moncla. And over about the same time period, more than 2,200 wells were shut down, he said, adding that the majority of those wells could start production again under the right economic conditions.
“If we would incentivize oil companies to go produce those wells, then the state is going to be the benefactor,” Moncla said.
He expects the oil industry to make the case again to the governor for severance tax exemptions in 2021.
“He’s certainly been adversarial to our industry in the past,” Moncla said, “but I don’t think that … means we can’t work with him in the future.”