LA Legis want to cut taxes for oil. They'd pay for it by upping taxes on natural gas.

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A package of bills aimed at boosting oil production and making Louisiana's tax code more competitive with those of neighboring states sailed through the Louisiana House Thursday. But the measures could face headwinds in the Senate, amid questions over their long-term impact on state coffers.

House Bill 600, sponsored by state Rep. Brett Geymann, a Republican from Lake Charles, would cut the severance tax rate on crude oil extracted from new wells nearly in half, reducing revenues by around $87 million over a five-year period, according to a legislative fiscal note.

To offset those losses, Geymann's House Bill 495 would limit a severance tax exemption for natural gas produced from horizontally drilled wells, resulting in $99 million in additional revenue during the same period, according to its fiscal note.

Taken together, the bills would mean slightly more tax money for Louisiana over the next five years. But long term, the changes would likely result in a net reduction of tax revenues, according to an economist who worked on the proposal and said the higher taxes on gas activity would not make up for the losses from oil drilling.

Reducing Louisiana's severance tax on oil has long been a priority of the business lobby, energy industry and Republican elected officials, including Gov. Jeff Landry and House Speaker Phillip DeVillier, R-Eunice. At 12.5%, it's the highest severance tax in the continental U.S. and hasn't changed since 1973.

Landry's transition committee argued that reducing the tax would "incentivize and amplify drilling in south Louisiana," and DeVillier sponsored bills each year from 2020-2023 that would've reduced the rate, though none became law.

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Supporters of the proposals argue that cutting the severance tax on oil to 6.5% will result in more oil production, particularly in south Louisiana.

“Getting the severance tax lowered on oil will bring some much-needed prosperity back to the coast,” state Rep. Jacob Landry, R-Erath, told lawmakers at a committee hearing Monday. Landry is the president of Industrial and Oilfield Services, Inc., an oil and gas construction firm.

"We’re looking at projects that are feasible now with the lower severance tax," he added.

Geymann said he hopes that the tax cut will spur enough new oil production to make up for the loss in revenue.

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Meanwhile, the boost in revenue from limiting the tax exemption for natural gas will be felt more immediately. Louisiana currently exempts severance taxes on natural gas produced from new horizontal wells for the first 24 months of operation or until the cost of constructing the well is recuperated. HB495 reduces that to 18 months or until well payout is achieved.

The measure is also aimed at making Louisiana more competitive with its neighbors. The severance tax on oil is 4.6 percent in Texas and 5 percent in both Arkansas and Mississippi, though Texas and four other states also charge property taxes on oil and gas reserves in the ground, while Louisiana doesn’t.

Meanwhile, natural gas production in Louisiana is taxed at a relatively low rate. "It's just true that oil has a way higher tax burden than natural gas in Louisiana," Upton said.

Geymann said he's working with both oil and natural gas interests to make sure everybody is happy. "You don't want to hurt one to help the other," he said. "We're trying to find that sweet spot where everybody can win."

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