Louisianians are well aware that state leaders must close a $1.6 billion budget for the upcoming fiscal year. It's an unenviable challenge - one that will require tough choices and wise decisions about how best to allocate limited resources for the greatest possible good.
One bright economic light is the fact that Louisiana is blessed with abundant natural resources. Rapid growth in natural gas production from the Haynesville Shale is the latest example. Haynesville is now one o the most productive natural gas plays in the country. Between 2008 and 2009, Haynesville development injected $11.5 billion into Louisiana's economy and created more than 90,000 high-paying jobs.
Louisiana is a leader in natural gas development because of balanced, constructive policies that encourage energy companies to invest in local development. Energy companies have finite amounts of investment capital. Each new project competes with others from across our shale-rich nation. Louisiana's horizontal well severance tax exemption has proven critical in allowing the Haynesville Shale to compete for and win significant investment dollars to the state's widespread economic benefit.
The exemption affords energy companies a limited tax reprieve on a newly-drilled Haynesville well, either for the first two years of production or until the well generates enough revenue to pay back drilling and completion costs. After either occurs, the remainder of the well's production is taxed at normal rates.
This "welcome mat" is critical because Haynesville wells produce natural gas with no oil, making drilling less attractive here than in oil-rich shale plays elsewhere. Without the exemption, Haynesville wells can't compete, forcing energy companies to send their investment dollars - and the jobs that come with them - to other states.
As lawmakers juggle finances, some have targeted these incentives as a potential corner to cut. That would be a costly mistake. In a recent study, Baton Rouge economist Loren Scott notes that Louisiana earns nearly $3 in state funds for every $1 it forgoes with the horizontal well exemption. Dr. Scott predicts a rapid exodus of investment in new drilling if the state removes the exemption.
Eliminating the exemption would not expand the state's general fund, Dr. Scott's study concludes. Quite the contrary, Louisiana would lose money, with capital to drill new Haynesville wells fleeing the state for more financially attractive regions.
Our nation is blessed with an abundance of clean-burning natural gas that rivals Saudi Arabia's oil resources. Undoubtedly, the Haynesville Shale can be a powerful economic engine for Louisiana. It is poised to generate billions of dollars and thousands of jobs here. Now is not the time for short-sighted fiscal maneuvers that sell that future short. It's time to reaffirm Louisiana's commitment to making the most of this vast, homegrown opportunity.
Chairman, State Affairs Sub-Committee for America's Natural Gas Alliance