While several bills were considered that would restructure the state’s severance tax scheme on oil and gas during Louisiana’s 2025 regular legislative session, three bills aimed to stimulate drilling activity and attract jobs in the energy sector were passed and sent to Governor Jeff Landry for his signature.
In an effort to make Louisiana more competitive, HB 600 by Representative Geymann lowers the severance tax rate from 12.5%, the nation’s highest, to 6.5% on oil produced from wells completed after June 30, 2025. In addition, this bill changes the special rate on oil produced from incapable wells from one-half of the regular rate provided for in present law to 6.25%. The reduced rate of tax applies to a multiple-well lease only if all wells on the lease or property are certified as incapable.
The law also changes the special rate of tax on oil produced from stripper wells from one-fourth of the regular rate provided for in present law to 3.125%. For oil produced from inactive wells, the special severance tax rate is changed from one-half or one-quarter of the regular rate provided for in present law to 6.25% or 3.125%, depending on when the oil was produced. And HB 600 changes the special rate of tax on oil produced from orphan wells from one-fourth or one-eighth of the regular rate provided for in law, to 3.125% or 1.565%, depending on when the oil was produced. The severance tax rate changes provided for in HB 600 apply to taxable periods beginning on or after July 1, 2025.
However, in order to pay for the rate reduction in HB 600, HB 495 also introduced by Representative Geymann, will reduce the duration of the horizontal well exemption from severance tax from 24 months to just 18 months.
HB 600 and 495 will only take effect and become operative if both acts are signed by the governor.
HB 518, also by Representative Geymann, is the third bill affecting severance tax that was sent to the Governor. This bill appears to address questions and some ambiguity in the legislation enacted during the Special Session in November establishing new audit and reporting requirements for the horizontal well exemption. Among those changes are that for the purpose of certifying well-cost statements licensed certified public accountants in good standing outside of Louisiana will be considered “qualified accountants” (along with CPAs licensed in Louisiana). The qualified accountants’ audits are to be performed in accordance with the attestation standards of the American Institute of Certified Public Accountants. In addition, the qualified accountant must acknowledge that he or she is “independent from the operator.”
It should be noted that while HB 518 does not include the oil severance tax rate reduction on oil produced from wells completed after June 30, 2025 that is contained in HB 600, it is anticipated that the Louisiana Law Institute will incorporate that change in the applicable statute since it does not appear to conflict with the provisions of HB 518.
For further updates regarding this topic, contact Liskow attorneys Bob Angelico, Leon Rittenberg III, Caroline Lafourcade, John Rouchell, Jamie Rhymes and Kevin Naccari, Jr. and visit our Tax practice page.