May 2, 2017 08:00 AM

Stuart Bishop's bill would close severance tax exemption loophole in funding for Oilfield Site Restoration Fund

Photo by Steve F/Wikimedia

The state fund used to restore oilfield drilling sites abandoned by operators is woefully underfunded, according to the Louisiana Legislative Auditor. Rep. Stuart Bishop hopes to help remedy the problem with his HB98, which will be debated by the full House of Representatives on Tuesday.

Bishop's bill would decouple the fee from severance tax payments. Under current law, if a well is exempted from severance tax payments, it is also exempted from paying into the Oilfield Site Restoration fund. HB98 would impose a modest fee on production from every well, regardless of its severance tax status.

A 2014 performance audit conducted by the Louisiana Legislative Auditor found gaping holes in the DNROffice of Conservation's management of its orphaned and abandoned wells program. Among the deficiencies cited was that Louisiana did not require sufficient financial security from drilling operators to provide for cleanup sites after drilling activities ceased.

Bishop
Photo by Robin May

"If an operator abandons a well without financial security," the report states, "OC is authorized to use funds from Oilfield Site Restoration (OSR) fund to plug the well and remediate the site."

At the time of the report, 58,000 oil and gas wells had been drilled in Louisiana, 75 percent of which had been exempted from putting up financial security for site cleanup. The report noted that the number of well sites needing cleanup was growing faster than the state's ability to clean them.

Bishop's bill would not require more operators to put up money for cleanup, but would impose a fee on oil and gas produced from all wells in Louisiana and dedicate the funds to OSR.

The fee would vary, depending on the price of oil. When the price of oil is at or below $60 per barrel, the fee would be 1.5 cents per barrel. If the price is between $60 and $90 per barrel, the fee rises to 3 cents per barrel. If the price moves higher than $90 per barrel, the fee would rise to 4.5 cents per barrel. The fee would also apply to the natural gas equivalent in price and volume produced.

The fiscal note on HB98 predicts that it would raise $6.4 million for the OSR over the next five years.

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