America is facing historic times on the energy front. Over a dozen shale plays spread themselves into each corner of the country. Talks of energy independence and energy security are dominating news cycles. Right here in Louisiana, the oil and natural gas supply is contributing to a manufacturing renaissance. According to a recent study conducted by the LSU Center for Energy Studies, Louisiana will see an economic impact of over $60 billion dollars in new manufacturing facilities and plant re-openings over the coming nine years.
However, Louisiana is also experiencing near record-low rig counts reaching back nearly two decades to the early 1990’s. The immediate question posed is why? A few contributing factors come into play when surveying today’s statewide land rig count in comparison to even as recent as 2010. Yes, natural gas prices have bottomed out to a 10-year low. These low natural gas prices have made it economically unfeasible to drill, for example, a Haynesville style well that can cost over $10 million dollars.
Another contributing factor leading to low rig counts points to the litigious environment in which the oil and gas companies have to operate. Even in South Louisiana, land rig counts have experienced about a 30% decline in comparison to a few years back. Due to this restricting legal climate in Louisiana, Oklahoma and Texas have an increasing number of oil and gas Louisiana-based companies operating in their states. A South Louisiana operator recently said that their company has significantly reduced their operations in Louisiana, moving their major project to Texas, due to the litigious nature of the business climate here.
While rig counts in Louisiana are at near record lows, the competitive nature of the oil and gas business has never been higher. In order for Louisiana to retain current business, while gaining new commerce, this stifling legal climate must be reduced.
Also, as Governor Jindal is proposing to eliminate Louisiana’s income, corporate and franchise taxes, while paying for those cuts with increased sales taxes, the timing is very sensitive. At a period when rig counts are low, natural gas prices are low, the litigious climate is stifling, and this new tax plan is being offered up, Louisiana must be cognitive of what it takes to be an economically competitive state.
An internal document from the Jindal Administration was leaked last week to The Advocate newspaper regarding Governor Jindal’s tax plan. The memo specifically mentions removing the severance tax exemptions for the oil and gas industry. The severance tax exemptions are critical incentives for the oil and gas industry of Louisiana. These incentives allow the companies to thrive and the state to remain competitive, especially with near record low rig counts and low natural gas prices.
Competition is now as close as a few hundred yards over the state line. In order for the oil and gas industry of Louisiana, specifically, to remain the economic driver of our state, the frivolous lawsuits must diminish and the timing of these new state-capitol driven initiatives must be reviewed.