SEVERANCE TAX REVENUE

Severance tax is levied on production of natural resources taken from land or water bottoms within the territorial boundaries of the state. The state collects no severance from production in federal waters in the Gulf which start three miles from the Louisiana coast line. Natural resources are minerals, other natural deposits, rock salt and salt content in brine, and all forms of timber, including pulp woods, and turpentine and other forest products. Severance tax is paid by the owners of the natural resources at the time of severance. Only revenue from minerals such as oil, gas, natural gasoline, distillate, condensate, casinghead gas, sulphur, salt, coal, lignite, and ores is considered in this chapter.

The following plot, Figure 11, shows historical fiscal year mineral severance tax revenue year mineral severance tax revenue by source and estimates of future severance tax revenue. Further historical severance tax data is provided in Appendix F.

The total severance tax revenue estimates are dependent on oil and gas production volumes and their market values. The oil and gas production volumes and prices used to estimate the severance revenue were forecasted by the DNR Technology Assessment Division models.

The following table is the estimated base case total mineral severance tax revenue for FY1997/98 through FY2002/03, and actual severance tax revenue for FY1996/97. The possible low and high for oil and gas severance tax revenue are shown in the following paragraphs.

The severance tax on oil severed from the land or water bottoms is levied based on the value (gross receipts received from the first purchaser, less charges for trucking, barging and pipeline fees) of the products. The standard transportation allowance is $0.25 per barrel regardless of its actual cost. The following estimated oil severance revenue was calculated using oil production volumes forecasted by the DNR Technology Assessment Division short term models and oil price projections discussed in the price chapter.

Table 11 lists the estimated crude oil severance tax revenue for FY1997/98 through FY2002/03, and actual severance tax revenue for FY1996/97. Figure 12 shows historical oil severance tax revenue by fiscal year. Crude oil severance tax revenue estimates for FY1997/98 through FY2001/02 at multiple assumed oil prices are listed in Appendix G.

The estimated crude oil severance tax revenue may turn out low if the price of oil increases, foreign oil imports remain at the present level, and domestic demand for oil increases. Severance tax revenue from stripper wells was excluded in the above estimates because oil prices are projected to be under $20 per barrel for the next several years. (Act 2 of 1994 exempted stripper oil wells from severance tax when the price of oil is less than $20 per barrel.) Historical fiscal year crude oil severance tax revenue is shown in Appendix F.

The severance tax on natural gas severed from the land or water bottoms is levied based on gas volumes or equivalent gas volumes of natural gasoline, casinghead gasoline, and other natural gas liquids, including but not limited to ethane, methane, butane or propane. Volume is measured at a base pressure of 15.025 pounds per square inch (psi) absolute and at the temperature base of 60 degrees Fahrenheit; provided that whenever the conditions of pressure and temperature differ from the above bases, conversion of the volume from these conditions to the above bases shall be made following the Ideal Gas Law with correction for deviation from Boyle's Law.

Table 12 shows the estimated natural gas severance tax revenue for FY1997/98 through FY2002/03, and actual severance tax revenue for FY1996/97. Figure 13 shows historical gas severance tax revenue by fiscal year. Natural gas severance tax revenue estimates for FY1997/98 through FY2001/02 at multiple assumed gas prices are listed in Appendix G.

The above estimated gas severance tax revenue was calculated using gas production volumes forecasted by the DNR Technology Assessment Division short term models and gas price projections discussed in the price chapter. Historical fiscal year natural gas severance tax revenue is shown in Appendix F.

The estimated gas severance tax revenue may turn out to be low if the economy continues its present recovery, the annual average gas price is greater than $2.10 per MCF, the crude oil price per barrel stays at present levels or goes higher making it uneconomical to switch to residual oil from natural gas, gas production volume deviates from the base level forecasted by the DNR Technology Assessment Division short term model, and gas demand increases more than predicted by the AGA.

All natural gas liquids or plant products are taxed at the natural gas rate at a calculated equivalent gaseous volume. Severance tax revenue from these liquids is included with natural gas revenue figures.

Other minerals that pay severance tax are coal, lignite, ore, salt and sulfur. The expected severance tax revenue from these minerals for FY1997/98 through FY2002/03 is around $1.8 million per year. The $1.8 million figure is the average annual non-hydrocarbon mineral severance tax revenue over the past five years. The non-hydrocarbon severance tax revenue historical figures is shown in Appendix F.

Return To: TABLE OF CONTENTS