American Oil and Gas Reporter - April 2020 - 82

pages 82-84_Layout 1 4/7/2020 10:06 AM Page 82

ConventionCoverage: Louisiana Oil & Gas Association

Property Tax, Tort Reform Under Study
LAKE CHARLES, LA.-A 41-word
amendment to the Louisiana Constitution
could repair the state's broken property
tax system covering oil and natural gas
wells, a tax analyst told the Louisiana
Oil & Gas Association's annual convention.
The proposal doesn't raise or lower
the values of the wells, or redefine the
calculations used to set taxes on them.
Rather, it provides a tool to help set a
well's rational value, Daron Fredrickson,
a partner at Merit Advisors in Gainesville,
Tx., maintained during the meeting, held
March 4-6 at the Golden Nugget Hotel
and Casino in Lake Charles.
"The system's worst flaw is a limitation
caused by phrasing in the severance tax
part of the Louisiana Constitution," said
Fredrickson, a member of LOGA's Board
of Directors. "It says no other tax can be
applied to minerals other than the severance tax. That limits operators on what
they can consider when they do calculations. Even if you are going to use a cost
approach to well value, you wouldn't be
able to consider the economic obsolescence."
In a panel presentation with state legislators, Senators Bob Hensgens, RAbbeville, and Kirk Talbot, R-River Ridge,
joined Representative Jean-Paul Coussan,
R-Lafayette, in analyzing issues that included tort reform and coastal lawsuits.
Amending The Constitution
Louisiana's property tax system for
oil and gas wells has been broken since
it was developed, Fredrickson asserted,
and it has only gotten worse since then.
Assessors now levy the tax based on the
well's original cost, depreciated over its
lifetime, with no consideration for production declines.
Considering the system's underlying
flaw associated with phrasing in the severance tax portion of the constitution, he
said, it limits operators on what they can
consider when they do their tax calculations. Even if you use a cost approach to
value a well, you wouldn't be able to
consider the economic obsolescence. No
one else in the country does it this way,
because it doesn't work."
LOGA and the Louisiana Mid-Continent Oil & Gas Association first sought
to fix this problem without a constitutional
amendment, but none of the considered
82 THE AMERICAN OIL & GAS REPORTER

options proved viable, he recalled. Resolving the issue became a priority in
2016 when the Louisiana tax commissioner ordered the oil and gas industry to
work with state assessors to develop a
new method to calculate taxes before he
came up with an approach nobody would
like.
"LOGA and LMOGA have worked
diligently with the assessors," Fredrickson
said. "What we presented to the assessors,
after the industry committee decided that
it could not go down the cost approach/obsolescence path, was to seek a constitutional amendment. It is similar to the
way it is done in Texas, in that it is just
discounted cash flow: to try to get to
some reasonable value of the well, and
not trying to tax the reserves."

the required voter approval, Representative
Mike Huval, R-Breaux Bridge, is sponsoring HB 360, Fredrickson reported. It
offers a proposed amendment stating,
"Notwithstanding subparagraph one, the
presence of oil and gas or the production
thereof, may be included in the methodologies to determine the fair market value
of the oil and gas well for ad valorem
taxation."
"This gives assessors and us tools,"
he said. "If you have a well, and you
spend $10 million to drill it, and it just
doesn't prove commercial, you can talk
about your income when assessing property tax. Now, income isn't considered
in front of the tax commission. This constitutional amendment does nothing to
your tax liability."

Assessors' Response
Meetings with the assessors were successful, and Fredrickson said they were
very gracious, raising legitimate questions
about the associations' proposal. The
three groups next met with Governor
John Bel Edwards, who approved the
plan.
"We think statewide to the aggregate,
the value will be at about the same, netnet. But there will be winners and losers
among the parishes, the operators and
everyone, because the values are in the
wrong places now. Moving the value
around will create winners and losers,"
Fredrickson warned.
To get the amendment on a ballot for

Lawsuit Legislation
Louisiana's oil and gas industry has
been waiting on legislators to deal with
coastal lawsuits and tort reform, and several of the state's elected leaders told
LOGA the time for action might have
come, although industry's concerns must
be addressed as part of a broader effort.
Senator Hensgens said Louisiana legislators were working to mitigate lawsuits
filed by coastal parishes and cities that
targeted oil and gas companies, seeking
massive payments because of allegations
of damages caused by industry activities
associated with claimed violations of the
state's Coastal Zone Management Act
(AOGR, February 2020).
Among the proposals under consideration in the statehouse is SB 359, which
Hensgens introduced. It limits the authority
of local governments or district attorneys
to local concerns within their coastal
zone jurisdictions and gives state officials
responsibility to regulate state concerns
within those zones.
"This bill doesn't take away lawsuits.
If New Orleans filed suit, the suit still is
on; but the plaintiff now is the state, not
the city," he explained. "The bill simply
says who has the right to enforce the
coastal permit-the state of Louisiana.
The state gave the permits to the companies, it is enforcing the use of those permits. The ultimate enforcement is a lawsuit; it should stay with the state."
In the House, HB 520, sponsored by
Representative Phillip DeVillier, R-Eunice,
also proposes to change state law to au-

Amending the Louisiana Constitution that
sets a well's rational value could help repair the state's broken property tax system,
predicts Daron Fredrickson, a partner at
Merit Advisors in Gainesville, Tx.

American Oil and Gas Reporter - April 2020

Table of Contents for the Digital Edition of American Oil and Gas Reporter - April 2020