LOUISIANA TO CONSIDER OIL AND GAS PROCESSING TAX

A bill seeking to levy a processing tax on oil, gas, and refined products has been introduced in the Louisiana Senate.

As proposed, Senate Bill 3 would generate about $850 million/year of tax revenue. But it would extract about $300 million/year from Louisiana consumers in higher energy and transportation costs, critics of the proposal say.

SB 3 lead author, Sen. Foster Campbell (D-Elm Grove, La.), would tax crude oil at 36cts/bbl processed in Louisiana, gas at 6cts/Mcf, and refined products at 41.4cts/bbl. Beyond technically accurate definitions, the bill expands the term "processing" to mean virtually any activity related to handling or transporting oil, gas, or products, including pumping, compressing, metering, dehydration, and separation.

The Louisiana Mid-Continent Oil & Gas Association (Lamoga) said imposition of the processing tax eventually would prompt refiners to shift capacity to other states. Transportation companies whenever possible likely would reroute oil, gas, or products now moving through Louisiana through pipelines outside the state.

Companies planning to expand, modernize, or otherwise improve transportation or processing facilities in Louisiana likely would redirect investments to other states or foreign countries, Lamoga said.

In addition to setting and collecting the processing tax, SB 3 would:

Lower the Louisiana severance tax to 10.5% from 12.5% on the value of oil and to 1cts/Mcf from 7cts/Mcf on gas. If passed, after Louisiana courts found the bill constitutional, the state severance tax would be eliminated.
Require revenue from the processing tax to be used to retire state debt.
Limit the amount of debt the state could incur in the future.

SB 3 also would require processing tax rates to be indexed according to a method to be developed by the Louisiana legislature to assure that rates keep pace with increases in the value of oil and gas. Tax rates also could be raised by a two-thirds vote of the legislature but would not be allowed to drop below the base rates stated in the bill.

The Louisiana Senate's revenue and fiscal affairs committee last week was to hear testimony on SB 3. Campbell failed in an earlier attempt to move the bill to the Senate finance committee on the grounds that the revenue and fiscal affairs committeemen would not allow SB 3 to reach the floor of the Senate.

Lamoga, the Louisiana Independent Oil & Gas Association, Louisiana Chemical Association, Louisiana Association of Business and Industry, and New Orleans-River Region Chamber of Commerce oppose the bill.