Abandoned oil wells are plentiful in South Louisiana. But they are not dry and oil can still be extracted from them.
The Louisiana House of Representatives has unanimously passed a bill to exempt oil production from abandoned wells from severance tax Tuesday. Rep. Jean-Paul Coussan, R-Lafayette described House Bill 662 as a win-win for the industry and the environment, but environment advocate Cynthia Sarthou, executive director of Healthy Gulf, called it a “real gift to the oil industry.” The Department of Natural Resources has designated more than 4,000 oil wells in the state as orphaned or abandoned. Wells typically become abandoned when a small oil company buys a previously drilled well and goes bankrupt without properly plugging and abandoning it. When this happens, the liability falls to the state, which uses revenue from a fee on oil and gas production to pay for the cleanup. But the program lacks adequate funding, according to a 2014 legislative auditor’s report.nola.com
The bill is designed to have the oil companies to take over the abandoned wells by eliminating the severance tax of 12.5% which is the normal tax on extracted oil. This tax break is time limited as it is for two years or until production of the well surpasses the cost of operation.
The fiscal note on the bill is zero because producers don’t usually take over liability on abandoned wells, said Gregory Brian Upton, Jr., an associate research professor at the Louisiana State University Center for Energy Studies, who testified on the bill when it was introduced in the House Committee on Ways and Means. But when orphan wells are brought back into production, the bill would result in a loss of severance tax into the state general fund, according to the fiscal note. “In short, taxpayer-funded clean up of orphan wells,” Sarthou said. As the bill was discussed in the House on Tuesday, Rep. Larry Frieman, R-Abita Springs, sarcastically asked how he could avoid taxes on a new business he wanted to open. In response, Coussan said the bill would benefit the environment by incentivizing small companies to take over wells and, eventually, plug and abandon them properly. “These are not major oil companies that are going to be taking over these wells. This will be the McCormicks of the world,” he said, referring to Rep. Danny McCormick, R-Oil City, who owns M&M Oil.
A similar bill by Sen. Bret Allain, R-Franklin was introduced in the Senate last year. To have teeth, the companies should be required to cap and fill the old abandoned oil wells which they do not. What is to stop them from taking the two year, extracting the oil left, and again walking away?