from a release today by the Louisiana Oil & Gas Association…
State revenues would actually decline if lawmakers repeal current oil and gas incentive programs, according to a new study by Dr. Loren Scott, Professor Emeritus at Louisiana State University. The study refutes arguments proposed by some who say the state is leaving money on the table by offering the tax incentives to the oil and gas industry.
“The Haynesville Shale play is just one of many resources available to investors in the United States and Canada. It is one of the most expensive to drill and has one of the lowest rates of return. Therefore it is unreasonable to assume that by removing the tax incentives, Louisiana stands to make millions of dollars from a captive industry. On the contrary, our study shows that for every one dollar given up through the incentive program, the state gained $2.94. However, if you take away the incentive, the state actually loses money in even the most conservative scenarios,” says Dr. Scott.
He says a combination of the decline in natural gas prices, the “Competition Factor” and the “Cost of Drilling” makes it difficult if not impossible for investors to be successful in Louisiana compared to other shale plays without the incentive program.
“It is clear that the Louisiana natural gas fields are what we call ‘dry fields’ which are deep in the Earth and have no simultaneous oil production. These are less valuable and more costly than the shallow, ‘wet gas fields’ found in other parts of the country where exploration companies can harvest both natural gas and oil at the same time. So we already have two strikes against us from a competitive standpoint. And nobody could have predicted the wild fluctuations in natural gas prices from $13/mcf to under $4/mcf. So by eliminating the incentive program, it’s likely that the pace of exploration and drilling would fall off significantly and we would expect existing companies to either move to more profitable areas or wait for the price to rise. In either case, it’s not good for state or local governments, employers or employees,” Dr. Scott adds.
To download a full copy of the study please click Here.