Louisiana public service commissioner promotes broader state oil tax

By OGJ editors
HOUSTON, Sept. 8 -- Louisiana's outdated system for taxing oil and gas means the state will collect no tax revenues on the new petroleum field discovered off the state's coast, said Louisiana Public Service Commissioner Foster Campbell.

He referred to a Gulf of Mexico Lower Tertiary play announced earlier this week by Chevron Corp. and Devon Energy Corp. (OGJ Online, Sept. 5, 2006).

Devon, which entered a joint venture to explore the play with Chevron in September 2002, expects four discoveries in which it has participated to add 300-900 million bbl of oil equivalent to the company's resource base. It has booked no reserves so far but expects production to start in 2009.

"But when that oil comes ashore, it won't raise a dollar for the state treasury," Campbell said. "Our state continues to rely on the severance tax enacted in 1921, meaning we tax only the oil and gas produced in our state and within 3 miles of our coast. This new Chevron find is 270 miles southwest of New Orleans.

"This development is absolute proof that Louisiana must move away from a system that taxes our declining in-state oil and gas production and toward a lower and broader tax on all oil and gas processed in the state," he said.

Campbell suggested a 4% processing tax that he estimates would yield $6 billion/year. Analysts for the state have studied a broad-based tax that would apply to hydrocarbons produced within the state as well as refined products via tankers coming into Louisiana ports and gas delivered via pipelines across the state.

The Legislature would have to approve such a tax proposal, which then would be presented as a state constitutional amendment. Similar measures have failed several times within the last 10 years, a spokesman for Campbell told OGJ.