Louisiana’s Future!

1. From Severance to Processing? Louisiana’s Future! Sen. Robert Marionneaux, SB 432 - 2010 Regular Session

2. History of Severance Tax • Louisiana has utilized a severance tax on oil and gas since 1928. It was a volume tax—that is, a tax per barrel of oil and a tax per thousand cubic feet—until 1973. • During 1973 Louisiana changed its severance tax on oil from 18 cents to 26 cents per barrel tax to a series of tax rates on value at the wellhead, with the top rate being 12.5 percent on the value of the oil at the wellhead. Sen. Robert Marionneaux

3. History of Severance Tax • Lower rates were applied to wells that were described as incapable (producing from 10 to 25 barrels per day) with the rate being 6.25 percent and wells that were defined as stripper wells (producing less than 10 barrels per day) with the rate being 3.125 percent. • The natural gas tax rate was maintained as a volume tax but with the tax rate rising from 3.3 cents per thousand cubic feet (mcf) to 7.0 cents per mcf. Sen. Robert Marionneaux

4. History of Severance Tax • The severance tax on oil has not changed from the 1973 laws except that certain tax incentives have been placed in the law in order to encourage additional drilling or exploratory activity. Sen. Robert Marionneaux

5. Attempts to Change the Severance Tax • Several suggested changes in the severance tax structure have been proposed from time to time. • The first major change was introduced in 1978 when the Louisiana Legislature passed the First Use Tax on Natural Gas. The Governor was Edwin Edwards and the member of the Louisiana House of Representatives who was the major proponent of the First Use Tax was Representative Billy Tauzin. Sen. Robert Marionneaux

6. Attempts to Change the Severance Tax • This law was immediately taken to the U.S. Supreme Court since other states objected to the tax and argued that Louisiana was interfering with interstate commerce. • The U.S. Supreme Court agreed that the First Use Tax was unconstitutional, but noted that the tax was unconstitutional because of the differential use of the tax on intra and inter-state commerce. • The court argued that such a tax could be constitutional if appropriately written. Sen. Robert Marionneaux

7. Attempts to Change the Severance Tax • In 1981 Governor Dave Treen introduced CWEL, the Coastal Wetlands Environmental Levy, and he hired a prominent national legal scholar, Professor Walter Hellerstein of the University of Georgia, to assist him in writing the law in such a way as to make sure it passed constitutional muster. • CWEL was a levy imposed on both oil and natural gas being transported in, through, or near the coastal wetlands of the state. • This proposal was defeated in the Louisiana House of Representatives so was never tested in the court system regarding its constitutionally. Sen. Robert Marionneaux

8. Attempts to Change the Severance Tax • Since CWEL, several attempts have been made to introduce an Oil and Gas Processing Tax with the first part of the battle - passing a constitutional amendment so that oil and gas does not have to be taxed at the wellhead. Sen. Robert Marionneaux

9. Recent Collections • Recently, the Louisiana severance tax has produced: • $911.469 million in fiscal 2007 • $1,036.843 million in fiscal 2008; and, • $911.702 million in fiscal 2009. • In fiscal 2010 the severance tax is projected to produce $755.7 million and in fiscal 2011 $690.7 million • The severance tax includes tax payments from oil, natural gas, timber, gravel, and other resources. Sen. Robert Marionneaux

10. Why Processing over Severance? • The simple question is, • “Why do we continue to rely on a tax structure that levies high tax on Louisiana producers who are struggling to drill and produce oil and gas here in the State, while ignoring the enormous volumes of untaxed oil and gas imported into the state?” Sen. Robert Marionneaux

11. Why Processing over Severance? • The proposed oil and gas processing tax typically lowers or eliminates the severance tax and then imposes the tax at the transportation of oil and natural gas, the processing of oil and natural gas, or any other such use of the product in its most unrefined state. • The purpose is to attach a direct tax on large volumes of oil and natural gas that are not produced in the state, but yet either travels through the state or is processed in the state. Sen. Robert Marionneaux

12. Why Processing over Severance? • In fiscal 2009 the state collected $606.539 million in severance taxes on oil given • (1) that the average tax rate is approximately 12.0 percent after taking into account the fact that there are multiple tax rates on oil depending on the status of the well, • (2) the average price of oil during fiscal 2009 was $69.71; and, • (3) the estimated (domestic) production of oil subject to the severance tax was 72.5 million barrels of oil. Sen. Robert Marionneaux

13. Processing tax saves Louisiana/Domestic Producers • A 3 percent across the board tax on oil produced in Louisiana would yield $151,634,000 million or $454,905,000 million less than the current severance tax yields. • Parishes?Acadia, Assumption, Beauregard, Bienville, Bossier, Caddo, Calcasieu, Cameron, Claiborne, Desoto, East Baton Rouge, Evangeline, Iberville, Iberia, Jackson, Jeff Davis, Jefferson, Lafayette, Lafourche, LaSalle, Lincoln, Plaquemines, Pointe Coupee, St. Bernard, St. Martin, St. Mary, Terrebonne, Vermillion, Webster Sen. Robert Marionneaux

14. Processing tax saves Louisiana/Domestic Producers • Foreign Oil Entering Louisiana – 827,031,674 (barrels per year)(6 year average) • A 3 percent tax on the processing of foreign oil in Louisiana would yield the following, subject to certain limitations: • 3% tax on total imports - $1,271.077 million • 3% tax on imports processed at LA Refineries - $828.192 million Sen. Robert Marionneaux

15. Our Fair Share? • OCS REVENUESIn 2001, the Minerals Management Service collected over $7.5 billion in oil and gas revenues from federal offshore leases. • Of the $7.5 billion, $5 billion came from offshore Louisiana. 80% of oil and 87% of gas from this nation's offshore waters comes from offshore Louisiana. • On federal lands within a state, the state shares 50% of the revenues. In 2005, Wyoming received over $878 million in revenues. • Outside of 6 miles offshore, Louisiana receives no share of revenue. • In 2005, Louisiana received only $32 million, less than of one percent of the federal revenues generated off of its coast. • In 2005, the total revenue collected by MMS from OCS was $5,705,953,872. Offshore Louisiana provided 74.2% of that total. Sen. Robert Marionneaux

16. Louisiana – Doing Its Part • For 50 years, oil and natural gas have been produced from the OCS underlying the Gulf of Mexico. • This production represents more than 83 percent of total OCS oil production and more than 99 percent of all OCS natural gas production. • The Louisiana OCS territory is the most extensively developed and matured OCS territory in the U.S. • Louisiana OCS territory has produced 88.1% of the 12.8 billion barrels of crude oil and 82.9% of the 139 trillion cubic feet of natural gas extracted from all OCS territories from the beginning of time through the end of 2000. Sen. Robert Marionneaux

17. LOOP • Louisiana Offshore Oil Port (LOOP) is the only offshore oil terminal in the United States. • It is located 18 miles off the coast of Louisiana in 115 feet of water in the Gulf of Mexico. It allows for the offloading of tankers too large for inland ports. • From offshore platforms, crude oil is then transported to shore at Port Fouchon by a 48in. pipeline. The crude is then pumped inland 25 miles to underground salt caverns, which have a capacity of 40 million barrels. • From storage, five connecting pipelines tie LOOP to over 50% of United States refining capacity. • LOOP transports approximately one million barrels of foreign oil a day and approximately 300,000 barrels of domestic crude from Gulf of Mexico OCS. • LOOP is estimated to take in 14% of the United States imported crude. Sen. Robert Marionneaux

18. LOUISIANA – Serving the Nation’s Energy Needs • Louisiana’s coast is disappearing at a rate of approximately 25 sq miles per year, the equivalent to losing over 21, 000 football fields • In the past 50 years, more than 1,900 sq miles of coastal Louisiana have been lost. • By 2050, another 700 sq miles will have been lost. • More than 30% of the nation’s fisheries comes from off shore Louisiana Sen. Robert Marionneaux

19. LOUISIANA – Serving the Nation’s Energy Needs • The expected cost for a coastal Louisiana restoration plan is $14 Billion Dollars over 30 years; • Compared to the cost of the Denver Airport - $10 Billion; • Boston Metro Extension – $40 Billion Sen. Robert Marionneaux

20. LOUISIANA – Serving the Nation’s Energy Needs • Louisiana Energy Statistics (2003) • Including Outer Continental Shelf • 1st in Crude Oil • 2nd in Natural Gas • 2nd in Total energy • Refining and Petrochemical • 2nd in Refining Capacity • 2nd in primary petrochemical production Sen. Robert Marionneaux

21. LOUISIANA – Serving the Nation’s Energy Needs • Louisiana’s coastal geography accommodate the movement of over 26% of the nation’s natural gas supply, and 26% of the nation’s crude oil supply • Together with the facilities throughout the state, nearly 34% of the nation’s natural gas supply and over 30% of the nation’s crude oil supply moves through the state of Louisiana • Louisiana accounts for nearly 50% of the nation’s refining capacity Sen. Robert Marionneaux

22. Where would we prioritize the funds? • A 3 percent across the board tax on oil produced in Louisiana would yield $151,634,000 million or $454,905,000 million lessthan the current severance tax yields. • A 3 percent tax on the processing of foreign oil in Louisiana would yield the following, subject to certain limitations: • 3% tax on total imports - $1,271.077 million • 3% tax on imports processed at LA Refineries - $828.192 million Sen. Robert Marionneaux

23. Where would we prioritize the funds? • SB 432 would prioritize the funds as follows: • 1/3 to Coastal Restoration efforts through the Coastal Protection Restoration Fund; • 1/3 to the Department of Transportation and Development for its $14 Billion Dollar backlog; • 1/3 for Educational Purposes Sen. Robert Marionneaux

24. From Severance to Processing! Louisiana’s Future! Sen. Robert Marionneaux, SB 432 - 2010 Regular Session