CENTER FOR ENERGY STUDIES LOUISIANA STATE UNIVERSITY (((((((((((((((((((((((((((((((((((((((((((((((((( NEWSLETTER (((((((((((((((((((((((((((((((((((((((((((((((((( April 1994 CES ANALYZES GOVERNOR'S Legislative Fiscal Office, in addition to CES. PACKAGE Consensus was achieved on oil and gas prices and production. $15/bbl was the concensus Governor Edwards publicly announced on estimate for projecting royalty and severance tax March 19th at LIOGA's Annual Meeting a five revenues and $2/Mcf was the concensus estimate point oil and gas package that he will submit to for projecting natural gas royalties. DNR the legislature. The package includes lower tax announced that the FY 93/94 severance rate for rates for specified periods to stimulate drilling for natural gas would be 8.7 cents/Mcf based on the exploratory, horizontal, inactive and deep prescribed index price. Prices are subject to formation wells. In addition, he proposes to revision based on the official Forecast of the exempt stripper wells from severance tax when oil Revenue Estimating Committee. is less than $20/bbl. The package also contains a resolution urging the federal government to adopt policies that will make deep water OCS PULSIPHER TESTIFIES BEFORE development economically competitive. CONGRESS CES conducted a fiscal and economic Allan Pulsipher testified on March 9 analysis of the package which was submitted to before the U.S. House of Representatives' DNR Commissioner Herb Thompson on March Committee on Public Works and Transportation 29, 1994. At current wellhead prices, the CES regarding the financing and competitive position analysis estimated the package would be revenue of the Tennessee Valley Authority's electric power neutral to slightly revenue positive during its first system. He argued that TVA faced unique year of implementation and generate or save financial challenges as a consequence of its some 900 jobs. Local governments should multibillion dollar unfinished nuclear construction experience a positive fiscal impact, due to sales program and that the agency should be taxes generated by the drilling activity and also restructured to provide for more external due to revenue sharing from state royalties. accountability and regional control. Copies of his testimony are available upon request. ENERGY REVENUE AND PRODUCTION ESTIMATING GROUP OPA 90 COMMENTS SETS MMS CES hosted its second annual meeting for RECORD staff involved in various aspects of projecting The U. S. MMS has reported that it has energy revenues and energy production for the received over 1500 written comments on state. Members of the informal group assist one implementation of OPA 90. Most of the another in preparing aspects of the state budget comments dealt with the Certificate of Financial and assessing fiscal impacts of legislation. The Responsibility (COFR) aspects. This is the largest group seeks consensus on baseline numbers in number of comments MMS has ever received. order to minimize differences in projecting fiscal CES assisted the State of Louisiana in impacts of proposed legislation. Specific pieces formulating its official position on OPA 90 which of legislation, when known, are also discussed. was presented at Congressional hearings by Tim The meeting was attended by Hebert of the Oil Spill Coordinator's Office. CES representatives from the Department of Natural had calculated that some 95 percent of Resources, Division of Administration, Louisiana's oil and gas operators could not meet Department of Revenue and Taxation and the the COFR, as the cost of surety bonds or insurance alternatives, if available, exceeded their 3) Regional Resource Centers will be profits. After publication of Mr. Hebert's established to provide access to reservoir and testimony, operators and official representatives production data, analytical tools and other data of five other states (AK, CA, NM, NY and OK) and technology services. requested advice from CES as to how they could The Center for Energy Studies is currently make similar calculations for their own respective coordinating Louisiana's proposal which will be states. submitted by the end of April. For additional information contact Bob Baumann. PETROLEUM TECHNOLOGY TRANSFER CENTER OCS OPERATORS SURVEY The U.S. Department of Energy plans to Higher natural gas prices and major fund a national program to establish ten regional advances in seismic data processing have Petroleum Technology Centers. The program will resulted in increased drilling activity in the Gulf of be administered through the Petroleum Mexico and more active bidding in the most Technology Transfer Council (PTTC) which is a recent lease sale. Regulatory and environmental new Washington-D.C.-based, non-profit interest in the Gulf of Mexico also has been corporation and is a spinoff from the IPAA. The increasing as evidenced by the Gulf of Mexico IPAA's involvement was deemed critical in order Plan and other federal initiatives designed to to make the program producer driven. Deborah increase environmental research in the Gulf. Rowell is the PTTC Executive Director and is also CES has commissioned Carl Schwobel of a Vice-President of the IPAA. Houston, TX to conduct an interview survey of After considerable deliberation, it was operators in the Gulf of Mexico to determine decided that Louisiana will be its own region and operational concerns and other policy issues for is officially known as the Central Gulf Region. A future development of the Gulf. Although the local Producer Advisory Group (PAG) has been individual comments of operators will remain established and is chaired by Bob Chebul of confidential, a summary report of the survey LL&E. He will also serve on the National PTTC should be available by June of this year. Board. Other members of the Louisiana PAG Individuals desiring a copy of the report can drop include Don Briggs of LIOGA, John Crancer of us a postcard c/o Debbie Pitcher, CES, LSU, Delta Seaboard, Henry Pfeffer, Jr. of South Oak Baton Rouge LA 70803. A copy will be mailed as Production, Chuck Rutland of Badger Oil & Gas, soon as the report is completed. John T. Palmer of Palmer Production, Don W. Solanas, Jr. of Arrowhead Exploration Co. and TAX FOUNDATION REPORT USES Gary Prehoda of Dowell Schlumberger. Jerry CES ANALYSIS TO MAKE TOTAL Ham of DOE's Metairie Office and Herb Thompson, Louisiana's Commissioner of ENERGY TAX COMAPRISONS: Conservation are ex-officio members. LOUISIANA HAS 3RD HIGHEST TAX Membership on the PAG is open but implies a BURDEN, TEXAS 4TH willingness to devote some time, especially during The Tax Foundation recently released a this formative period. special report entitled The Taxation of Energy in The Center for Energy Studies has been the U.S.: Who Pays? the study relies on and selected to be the Regional Lead Organization refers to the interstate comparisons of total state (RLO) whose responsibilities include getting the and local taxes on the E&P part of the gas and oil program established, carrying out the wishes of industry that the Center's staff published in the the PAG and interacting with the National Council. Oil&Gas Journal last year. The Tax Foundation's There are three main components to the program: study is much broader than the Center's in several respects. It not only tries to encompass all energy 1) Problem Identification Workshops taxation by federal, state and local governments wherein operators are to prioritize technology in all states but it also tries to estimate taxes assistance problems to be resolved. shifted and taxes exported to determine the 2) Focused Technology Workshops incidence of energy taxes. That is, the study tries wherein service companies and other experts are to determine the total amount of energy taxes brought in to help resolve operators' specific actually paid by households within each state exploration, production and environmental because--as Arthur P. Hall, the author of the study compliance problems. points out-- ultimately all business taxes are "shifted" and either paid by consumers of the gas reserve additions also declined from a high of product or the workers or owners of the resources 165 million barrels of oil equivalent in 1990 to 69 employed in the business. (The Center's work million BOE in 1992. dealt only with state and local taxes paid by gas Despite declining petroleum production in and oil E&P operations in 11 states.) the state, on average, only 24 percent of crude oil produced has been replaced by new reserve Measuring energy taxes on an ultimate-incidence additions via drilling since 1988 as shown in Table rather than tax-collected basis makes a big 1. The comparable five year average difference for many states. For example, Alaska replacement ratio for natural gas liquids is 45 collected $1.15 billion in severance taxes in 1993, percent and the ratio for dry natural gas is 44 but because most of this was shifted and exported percent. to consumers in other states in the form of higher Louisiana's replacement ratios for oil and prices of products refined from Alaskan crude, the dry gas are below those for Texas. For dry gas, amount of severance tax collected by Alaska, that Louisiana's replacement ratio is also nearly 10 was allocated to the Alaskan tax burden was only percent below the national average. $130 million. California, on the other hand, which has no state severance tax to speak off, was allocated $558 million as a consequence of severance taxes shifted on to products purchased by California consumers. Despite making such adjustments to reflect the incidence of energy taxes, households in energy- producing states still bear the heaviest energy tax burden--this is primarily because workers and resource owners in energy industries also bear a sizable chunk of the ultimate tax burden once it has been shifted. On a per household basis, the states with the heaviest, total energy tax burden were: 1) Alaska, 2) Wyoming, 3) Louisiana, 4) Texas, and 5) New Mexico.