In keeping with the Governor’s call for the Legislature’s 2024 Third Extraordinary Session, House Bill No. 25 was introduced on Monday seeking to adjust severance tax rates, eliminate exemptions, and modify administrative procedures and dedications of mineral revenues.
HB 25 initially proposed that severance tax on oil should be determined based on volume at a price to be determined every 6 months (April 1st & September 1st) by the Louisiana Department of Energy and Natural Resources (“DENR”) based on an average monthly price per barrel of the most recent 6-month Louisiana Light Sweet Crude.
On November 13th, the engrossed version of HB 25 was reported favorably by the House Committee on Ways and Means with amendments, the most significant of which is that the severance taxes due on oil, and gas, shall continue to be determined based on value, rather than volume. The proposed legislation, which has now been recommitted to the House Committee on Appropriations, now provides that:
- For wells completed before July 1, 2025, oil sold shall be taxed at the rate of 12.5% of its value at the time and place of severance;
- For Wells completed on or after July 1, 2025, oil sold shall be taxed at the rate of 6% of its value at the time and place of severance; and
- Any oil sold on or after July 1, 2035, shall be taxed at the rate of 6% of its value at the time and place of severance.
The amendment to the bill partially reinstates the existing provision regarding valuation which is that “The value of oil shall be the gross receipts received from the first purchaser, less charges for trucking, barging, and pipeline fees.” It also eliminates the “posted field price” as an alternate means of valuing oil.
Oil produced by incapable oil wells (no more than 10 barrels per day and now defined as a “stripper well”) is to be taxed at the rate of 3% of the value of oil produced after July 1, 2025, eliminating the separate classification and rate for “incapable” wells. The exemption for production of crude oil from such wells where the value is less than $20.00 per barrel has been retained in the amendment to HB 25.
HB 25, as filed, contained provisions to sunset the Horizontal and Deep Well exemptions for wells completed on or after July 1, 2035. As amended by the Ways and Means Committee, for such wells completed on or after July 1, 2025, the exemption is available only if the well is drilled and completed in a defined regulatory unit which was established prior to July 1, 2025. “Defined regulatory unit” is defined as “a unit created by the commissioner of conservation after notice and a hearing for the production of hydrocarbons.”
While HB 25 initially sought to tax natural gas based on volume, as amended, the severance tax on this resource shall be on the “market value” at the mouth of the well from which it is produced. The bill provides that the value of gas at the mouth of the well shall be determined by ascertaining the producer’s actual marketing costs and subtracting those costs from the producer’s gross receipts from the sale of the gas.
- For wells completed before July 1, 2025, natural gas shall be taxed at the rate of 4%;
- For wells completed on or after July 1, 2025, natural gas shall be taxed at the rate of 6% provided the well is drilled and completed in at least one defined regulatory unit which was established before July 1, 2025; and
- Natural gas produced from a well completed on or after July 1, 2025, which is not in a defined regulatory unit established before July 1, 2025, shall be taxed at the rate of six percent;
- Any natural gas produced on or after July 1, 2035, shall be taxed at the rate of 6%.
And the exemption for vented and flared gas is retained in the amendments to HB 25.
The effective date of the proposed legislation is January 1, 2025.
We are aware that industry groups are working with legislators to protect the oil and gas industry members’ interests. We’ll continue to monitor this legislation as it works its way through the Special Session.
The Extraordinary Session began on November 6, 2024, and is to conclude no later than November 25, 2024.
For further questions regarding this update, please contact Liskow attorneys Caroline Lafourcade, Bob Angelico or Neil Abramson and visit our Tax Practice page.
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