The state’s oil and gas industry, long the engine that drives Louisiana’s economy, is sputtering under the weight of a global oil glut and plummeting commodity prices.
U.S. Rep. Clay Higgins, R-Lafayette, said he’s written to Gov. John Bel Edwards to ask him to lighten the burden on oil and gas producers, which employ some 36,000 people in Louisiana, and affiliated companies, which generate some 260,000 jobs, direct and indirect in state, by reducing or suspending the state’s severance 12.5 percent severance tax.
“By doing this, you will ensure that one of the biggest employers, direct and indirect, of Louisiana citizens is able to continue offering services to our state and nation,” Higgins wrote in his letter, released this week. “This will also allow hundreds of thousands of Louisiana citizens to continue receiving paychecks and benefits, which will allow the federal government and state additional leeway to prioritize our resources.”
In his letter, Higgins cited two recent developments that have driven prices and profits down: the global price war for oil launched by Saudi Arabia and Russia, major producers; and the coronavirus pandemic, which has suppressed global demand for energy. The West Texas intermediate price of oil was below $22 a barrel Friday morning, down from $62.48 a barrel six months ago.
The effects of those two developments placed “energy jobs in Louisiana and the nation … in a particularly precarious state,” Higgins wrote. Suspending or trimming the state’s severance tax would help oil and gas companies in keeping their payrolls intact.
The second-term congressman, a Republican, said the governor, a Democrat, had not responded to him by Thursday, other than to acknowledge receipt of his letter. That, he said, has never happened before.
In a telephone interview, Higgins, who was set to return to Washington, D.C., on Friday morning, said he’s aware that the severance tax decision belongs to Edwards alone, in that the severance tax is a state issue. Severance tax collections reaped $525 million for the state budget in Fiscal Year 2019, money that would be hard to replace.
But with production and prices down, Higgins said, collections were going to be substantially diminished, as well. Suspending or cutting severance tax collections, he said, would give at least some relief to oil and gas producers and would send a message to investors that Louisiana’s business climate was more welcoming. By comparison, Higgins said, Texas collects a severance tax of only 4.6 percent.
While Higgins is a federal lawmaker, the severance tax hasn’t escaped the notice of state lawmakers. Five filed bills pertain to the severance tax, including one by State Rep. Phillip R. DeVillier, R-Eunice, that would reduce the tax impact on low-producing wells. More bills may be filed Tuesday.
Gifford Briggs, president of the Louisiana Oil & Gas Association, said LOGA has surveyed members about their needs as the 2020 legislative session resumes next week. The session opened March 9 but was suspended two weeks because of the coronavirus.
“A large majority of wells will be shut in at these prices,” he said. “They won’t be brought into production again.”
He said producers need severance tax help soon, as oil prices have dropped 60 percent since January. State support through suspending or cutting severance taxes would help to keep wells producing.
Briggs said he has received a copy of Higgins’ letter; he said LOGA has had conversations with the state’s federal delegation as well as its state lawmakers. He said LOGA has not approached Edwards yet because he knows the governor is hard pressed to keep up with the pandemic. He also said there is no time for partisanship; all state officials must be working to helping the state’s people — and its business community — survive.
“Hopefully the governor will champion the needs of small- and medium-sized producers,” he said.