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Wednesday, April 29, 2015

New documentary Looting Louisiana highlights $2.4 billion in state tax exemptions for oil and gas drilling

Posted By on Wed, Apr 29, 2015 at 12:43 PM

click to enlarge Tax exemptions for oil and gas drilling, which have cost state coffers $2.4 billion since 2008, have gone unscathed at a time when legislators are looking to whack exemptions elsewhere. - WWL-TV
  • WWL-TV
  • Tax exemptions for oil and gas drilling, which have cost state coffers $2.4 billion since 2008, have gone unscathed at a time when legislators are looking to whack exemptions elsewhere.


Higher education, health care and solar and film tax credits all are on the chopping block amid Louisiana’s big budget crisis. Meanwhile, tax exemptions for oil and gas drilling, which have cost state coffers $2.4 billion since 2008, have gone unscathed. Next Monday, May 4, is Oil and Gas Industry Day at the State Capitol.

That has environmental activist and filmmaker Mike Stagg seething.

“If you’re getting $2.4 billion in severance tax exemptions and that’s not enough for you in an era when other people are getting cut… that’s greed,” said Stagg, a former gubernatorial and Congressional candidate from Lafayette.

Today, Stagg will release a documentary, Looting Louisiana, that shines new light on a series of legislative audits and revenue reports that sounded an alarm years ago about oil and gas tax collections and royalty payments.

It’s unclear how much revenue may have been lost, but Stagg pegged the amount at potentially “hundreds of millions of dollars” based on the legislative auditors’ finding that audits that had once flagged tens of millions of dollars in unpaid taxes each year all but stopped for a period of about three years.

Most eye-popping was the 2013 Legislative Auditor’s report that found a 99.8 percent drop in unpaid severance taxes identified via state tax audits between 2010 and 2012 – from $26 million to just over $40,000.

Meanwhile, the state collected significantly less in total severance taxes for oil and gas production on private lands, in spite of an explosion in shale gas drilling. In 2010, revenue from severance taxes fell by $154 million, a 17 percent decrease from the previous year.

What changed?
click to enlarge Mike Stagg is a documentary filmmaker who is releasing a film about Louisiana oil and gas tax collections. - WWL-TV
  • WWL-TV
  • Mike Stagg is a documentary filmmaker who is releasing a film about Louisiana oil and gas tax collections.


The responsibility for performing those severance tax audits was moved in 2010 from the state Department of Revenue, which handles tax collections, to the Department of Natural Resources (DNR), which regulates the oil and gas industry and hands out leases for state-owned lands.

Stagg says the decline in audits shows collusion between the regulators and the regulated, but DNR spokesman Patrick Courreges says it’s nothing so nefarious. Courreges said a special Streamlining Commission recommended that Natural Resources take over the severance tax audits on private lands because it was already handling audits on 25 percent of the oil fields on public lands that pay state royalties.

“On paper it seemed like it should work. But the two functions just didn’t mesh,” Courreges said.

The problems arose because DNR field auditors were looking in the wrong places. They tacked severance tax audits on top of the royalty audits they were already performing, mostly in south Louisiana where the majority of state-owned water bottoms are located. But all of the private oil and gas activity was elsewhere — in the booming Haynesville Shale in northwest Louisiana, the Delhi Field in northeast Louisiana and the Austin Chalk and Wilcox fields in central Louisiana.

“And the royalty audits take longer and were slowing down the severance tax audits,” Courreges said.

So, after three years under DNR, the severance tax audits were handed back to the Department of Revenue — and annual severance tax revenues climbed again. The percentage of publicly owned oil fields audited had decreased from 23 percent to 12.75 percent on DNR’s watch, the legislative auditor found, but hit a new high of 25 percent last year, Courreges said.

The explanation? The legislative auditor directed DNR to audit some of the smaller players, and not just the bigger companies – but when the DNR auditors did that, they didn’t have the resources to conduct robust audits on the big boys.

Courreges added that he could understand why some people would wonder if the historically cozy relationship between the state and the oil and gas industry was rearing its head again.

“I know folks like to look at that, and Louisiana’s got its history, but it ain’t Huey Long and Standard Oil anymore,” Courreges said. “They used to dump God-knows-what God-knows-where; now we’re fighting over parts per billion. But for a lot of folks, you remember what was, so that’s what is. I understand the skepticism. But the findings in the audit have been a guiding light for us … to make things better.”

Still, some legislators are concerned that oil and gas lobbyists continue to have too much influence over the process. State Sen. Rick Gallot, D-Ruston, proposed a resolution last year, based on the legislative audit findings, to urge the state agencies to perform a study and do everything possible to verify that all severance taxes and royalties were being collected.

Gallot’s resolution passed unanimously in the Senate, but was killed in the House. Gallot blames the oil and gas industry. “The lobbyists who are paid to protect the oil and gas industry, they are the ones who were responsible for killing it,” he said.
Most eye-popping was the 2013 Legislative Auditor’s report that found a 99.8 percent drop in unpaid severance taxes identified via state tax audits between 2010 and 2012 – from $26 million to just over $40,000.
“We were auditing more of the smaller companies, but it came at the expense of auditing that 20 percent of them who pay most of the royalties,” Courreges said.

Gifford Briggs of the Louisiana Oil and Gas Association said industry lobbyists had nothing to do with killing Gallot’s resolution — and nothing to do with the state’s auditing issues. He said the industry is always ready to pay its fair share of taxes and royalties, but reductions in recent years have had more to do with changes in production.

“We’ve got a severance tax on oil of 12-and-a-half percent, the second highest in the nation, but if most of our production is moving over to gas, which it is because of the Haynesville Shale, you’re going to see a drop-off,” Briggs said, noting that natural gas severance taxes fluctuate with the commodities market.

Briggs added the industry’s tax exemption for horizontal drilling, a big part of the shale gas and fracking boom, didn’t cost the state much money because those types of wells operated for relatively short periods of time. They never last the two years that the exemption is available on each well, he said.

Stagg also complained that oil and gas companies have been slow-walking their tax exemption applications because the state had been required to pay judicial interest of 4 percent on the rebates. Four percent is substantially higher interest than banks are paying these days on savings and money market accounts.

The longer it took for a company to claim its rebate, the more interest the state would have to pay on top of the rebate itself. The legislative auditor found that the state overpaid $13 million in severance tax refunds from 2010 to 2012, then paid $24 million in interest on top of that.

“One of the problems they found was that oil and gas companies were essentially gaming the severance tax process,” Stagg said.

Courreges says that too has been changed, so that now the companies must pay the high judicial interest on unpaid taxes and the state pays money market rates on delayed severance tax rebates.

In the current fiscal climate, Gallot says there’s growing political will to hold the industry and the regulators more accountable — and possibly to get rid of some tax exemptions.

“Now, I think it’s more critical than it’s been in recent times because our budget situation is so critical,” Gallot said. “The companies have done exceptionally well [because of the Haynesville Shale], but the state and people have not done so well. I believe there are [bills] that cover the whole landscape of exemptions. Now, whether or not it will actually pass is another thing.”

— This story was reported by David Hammer of our newsgathering partner WWL-TV. Read the original story here and watch Hammer's report:


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