As the 2015 Louisiana State Legislature convenes, a $1.6 billion budget deficit has everyone wondering what or who gets cut first? While the state has a deficit to deal with for this fiscal year, the oil and gas industry has its own set of worries. The hope is that the state financial woes do not add insult to injury for the oil and natural gas industry.
At a time when the Louisiana oil and gas industry is facing record low rig counts, record low permitting, and generally unprofitable oil and natural gas prices, now would not be a good time to rip away incentives that make our state so competitive.
Recently, the state of Mississippi passed a horizontal drilling incentive that could cause some investors to wonder if Louisiana is even a viable investment option for the future. The Louisiana oil and gas industry has already lost the inactive well incentive contributing to the drastic drop in exploration in our state.
To be more specific, the most recent permit numbers in Louisiana have not been this low since September of 1992. The rig count in South Louisiana did not reach the current lows even in the 1980’s when the bottom dropped out on the industry.
Now is not a time to beat a dooms day drum. It is simply important to make all necessary audiences aware of the realities facing the largest job-producing industry in the state. Since November of 2014, crude oil prices have dropped from around $115 down to the mid $40 range. This also has a direct tie to the state budget. For every dollar that the price for a barrel of oil falls, this one-dollar drop translates to $11 million in loss revenue for the Louisiana state budget. The total loss in revenue for the state budget is now around $770 million. As a reminder, over 14% of the state budget comes from the oil and gas industry. This specifically means that over a billion dollars of indirect revenue is contributed to the state budget through the work of the Louisiana oil and gas industry.
Currently, the inventory tax is also on the chopping block for the upcoming session. LOGA stands with LABI in their efforts of a full repeal of this aggressive tax. Again, whether an incentive gets removed or a tax is repealed, the Louisiana industry is in no position to take more hits to its competitive edge on other states. The oil and gas shale plays within the United States make competition for our industry just a few hundred yards over the state line. In previous years, competition was across the country or around the globe. This is no longer the case as Texas, Mississippi, Oklahoma and Arkansas each have oil and gas exploration that can lure business away from Louisiana.
As this session takes shape, it will be vital that every bill filed and every vote casts are done with regards to the entire business community within Louisiana. Our state has the long-term potential to be a leader in the oil and gas sector for the entire nation. Or, due to falling prices, increased taxes, removed incentives and a litigious legal climate, Louisiana could just become a state with much potential but not much output.