Louisiana is looking to stay competitive in the energy production sector by slashing taxes on oil. House Bill 495 easily passed through the House recently and is awaiting action in the Senate. The bill is an attempt to boost energy production in Louisiana by slashing the severance tax on oil drilled within the state.
So, what is a severance tax? Dr. Greg Upton, Executive Director of the LSU Center for Energy Studies, joined WWL’s Tommy Tucker to discuss the details.
“We have a 12.5% severance tax, and that is a tax on any oil or natural gas extracted from the ground. For oil, that’s 12.5% of the value when you ‘sever’ it, so to speak,” Upton explains.
He says any time a well for oil production is drilled and oil or gas is pulled from the ground, a tax will be owed on that product. Within the bill are reforms aimed at lowering the tax to keep Louisiana more competitive with the tax rates paid by neighboring states.
When it comes to the long-term outlook for oil production in Louisiana, Dr. Upton isn’t sure these measures will lead to the type of boom some are hoping for. While the heyday of oil production in the state in the 80s was a prosperous time for many, Upton doesn’t expect those heady times to return.
“It will increase production relative to the track that would have occurred with a higher tax rate, but I don’t expect production to turn a corner significantly,” Upton goes on to add.
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