Appendix D
Louisiana Severance Tax Exemptions

Act 2 was enacted in the summer of 1994 to give the oil and gas industry some relief by providing economic incentives to drill new wells and to continue production from marginal wells. Some of the provisions that would have expired in 1996 were extended by Act 16 of the 1996 Regular Session. The provisions of this legislation are summarized below:

1. Any oil well certified as a stripper well (0 - 10 barrels per day) shall be exempt from severance tax in any month in which the average posted price for a 30-day period is less than $20.00 per barrel.

2. On any horizontally drilled well or any horizontal recompletion from which production commences after July 31, 1994, all severance tax shall be suspended for a period of 24 months or until payout of well cost is achieved, whichever comes first. Payout of well cost shall be the cost of completing the well to commencement of production.

3. For oil and gas wells returned to service after being inactive for 2 or more years or having 30 days or less of production during the past 2 years, production shall be exempt from severance tax for a period of 5 years. Application for this exemption must be made before commencement of production, during the period of July 31, 1994 through June 30, 1998.

4. Wells drilled to a true vertical depth of 15,000 feet or more, where production commences after July 31, 1994 shall be exempt from severance tax for 24 months from the date production begins, or until payout of well cost, whichever comes first.

5. All severance tax on production from certified new oil and natural gas discovery wells is suspended for a period of 24 months from the date of completion or until recovery of payout of well cost, whichever comes first. The well must be completed between September 30, 1994 and September 30, 1998

These drilling and production incentives in Louisiana and similar ones in Texas and surrounding states are difficult to accurately determine their impact due to the simultaneous development of other concurrent changes, most notably the almost explosive application of 3-D seismic exploration technology during the same period. The exception is the reentry incentive which seems to have had a significant impact on reactivating inactive wells and for using old well bores as a point of entry to lateral off into new producing zones identified by new 3-D seismic data. The actual effects of the remainder of the incentives are not nearly so clear to decipher.

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