A new report published by the New Orleans-based Pelican Institute for Public Policy estimates that coastal lawsuits filed against oil and gas companies have cost the state between $44 million and $113 million every year.
“Between 53 and 74 fewer oil wells were drilled offshore Louisiana than would have been drilled if the threat of lawsuits was lower in the state,” writes the author of the report, Gavin Roberts, assistant professor at Weber State University and former energy industry analyst.
The increased lawsuit risk in Louisiana has resulted in a decrease of more than 2,000 employees across four occupations in the state’s oil and gas industry, the report states, equating to lost earnings of $70 million per year.
“Given that the average royalty rate in the coastal zone of Louisiana is approximately 20 percent, we estimate Louisiana’s state and local governments lose $8.9 million per year to $22.6 million per year in royalty revenue,” Roberts writes.
Currently, six coastal parishes in South Louisiana have filed lawsuits against a large number of energy companies. The report points out:
Economic theory indicates that with increased risk of lawsuits against oil and gas producers comes less investment, and more specifically, less drilling activity. When the risk of getting sued increases, the expected costs faced by companies increases and as a result, drilling activity decreases.
We discovered that between 53 and 74 fewer oil wells were drilled offshore Louisiana than would have been drilled if the threat of lawsuits was lower in the state.
Given that the average royalty rate in the coastal zone of Louisiana is approximately 20%, we estimate Louisiana’s state and local governments lose $8.9 million per year to $22.6 million per year in royalty revenue.
Plaintiffs allege that the oil and gas companies have damaged south Louisiana’s wetlands and violated state law.
Freeport McMoRan was the first company to settle– agreeing this September to pay $100 million in cash and environmental credits over the next several years.
The Pelican Institute has proposed reforming the legal climate in Louisiana in its “Jobs and Opportunity Agenda for Louisiana” report.
The American Tort Reform Association, which advocates for a pro-business legal climate, has labeled Louisiana as a “judicial hellhole” for several years in a row.