There is that breed of public figure who strikes a hero-headed pose, the adherent of self-reliance, a proselytizer of personal responsibility who, while praising the miracles of the free market, is quick to deal a dismissive cut to the “nanny state” for her intrusion and overreach; such interference hobbles the bounding promise of like-minded, rugged, invariably wealthy, individuals.
But when the West Texas Intermediate oil price dropped to a negative $37.63 a barrel last month, a battalion of these frontiersmen grabbed their coonskin caps and gallantly harangued the “nanny state” for a pacifier. They claim that if oil stays low, oil producers will go belly up, so Louisiana needs to shoulder the load.
Gifford Briggs, chief lobbyist of the Louisiana Oil & Gas Association, sums up the demands by saying, “If the industry is going to survive we will need severance tax relief, royalty relief and an end to the government sponsored coastal lawsuits.” While Briggs’ hyperbole implies that the entire oil industry is about to meet the same impending fate as the polar bear, the measures are mostly devised to rescue small oil operators in the Louisiana and the Gulf.
Brigg’s ranks have swelled. Rep. Clay Higgins took time off from meditating on the oppression of face masks to write an op-ed recommending the exact same measures as Gifford. Our Senators, Bill Cassidy and John Kennedy, have called on the president “to suspend all royalty payments for independent offshore oil and gas producers for a full year” after the COVID-19 pandemic has ended.
The Louisiana House of Representatives has moved HB 506 forward to the Senate; it would lower severance tax half a percent for eight years, from a 12.5 percent rate to 8.5 percent. It’s expected to cost the state an estimated $151.4 million over the next five years. There is also House Concurrent Resolution 65, which suspends severance tax for 14 months and will cost 300 million in state revenue. And the Senate itself has proposed a bill stopping local environmental lawsuits against the oil industry from moving forward.
So, a significant portion of Louisiana’s political class has manned the barricades for the oil industry, and if successful their actions will blow a hole in the state budget that will probably have to be filled by cuts to higher education and sales tax hikes and will nudge our state closer to bankruptcy.
There are two factors that should blunt the efforts to cut the oil tax and stop royalty payments. One is that the price of oil has rebounded to around $33.00 a barrel, and with a cut to production that price will go up. More importantly, oil companies can now get low interest loans from banks through what’s called the Main Street Lending Program, and that can hold them over during this crisis. In this program, the federal government provides banks with some $600 billion of fresh equity.
Fresh equity is a fancy way of saying money the Federal Reserve just printed and given to the banks to keep credit flowing. But fortunately, the money still has that new money smell (not really, the new money is an abstraction coldly engendered in a government computer and transferred to equally cold private banks).
The banks then loan that money to needy businesses and the Federal Reserve, and buys back 85-95 percent of that loan from the bank it gave the money to, in a Byzantine shell game that kindles my suspicion that mankind is God’s most irrational monkey. While it’s certainly a miscreant route, it’s one that at least puts the onus on the companies needing the help and on the federal government, which does not have to balance its budget, sparing Louisiana the burden of saving the oil companies. This alone should be enough to carry oil companies through this crisis and keep the severance tax and the royalty payments intact. But with the tenacity of a tick, the oil companies and the rough riders who serve them will still try to extort as much money from the state as possible.
Gifford Briggs also has the answers when it comes to Louisiana’s environmental lawsuits against oil companies. He believes “ending the lawsuits would allow oil and gas producers to use their money on operations and retaining employees rather than paying to fight lawsuits.” This would be a simple answer and within the power of the Louisiana government to enact.*
But while it’s within the realm of possibility, the lawsuits aren’t the real problem. The real problem is the oil market is in a glut.
Louisiana’s oil is in the Gulf of Mexico; Texas has the Permian Basin. The constant mantra that “America has achieved energy independence” is baffling since the U.S. only owns the oil in the Strategic Reserve; the rest belongs to Exxon and Shell and BP et al. While it’s true that oil companies have achieved monstrous production levels, it has come with a price for American oilfield workers and Louisiana.
In a glut, there’s not going to be much drilling. And even if there is much drilling, it probably won’t be in the Gulf of Mexico (GOM). In places like the Bakken Shale in North Dakota and the Permian Basin in west Texas, fracking has increased production from less than 6 million barrels a day in 2008 to better than 12 million barrels a day now, more than doubling output.
Nearly all the major oil producers moved from the GOM to the Permian Basin for one simple reason: They love the open plains and desolate beauty of west Texas where the noble osprey cries as it strikes a jack rabbit in the dying light of dusk reminding the oil companies of man’s unending struggle against nature. That hard-bitten terrain fills them with the greatness of the American pioneering spirit which inspired so many men blessed with the Homeric virtues who, unencumbered by regulation and law, made this country what it is today. Okay, that, and love of profit.
The Basin is a particularly rich region. And while there is plenty of oil left in the GOM, it’s a lot less expensive to hire a little land rig from a contractor and punch a hole in west Texas than to frack the well then it is to hire a sixth-generation, dual derrick drillship and attempt to drill and well 70 miles offshore in 5,000 feet of water. In short, fracking killed drilling in the Gulf because it’s much cheaper to operate on land than at sea. The problem with the dwindling Louisiana oilfield is a market problem, not a legal one, and it takes a Stygian heart to use oilfield workers’ hopes as counters in some kind of emotional blackmail game.
If the oil companies can get politicians to legislate their environmental lawsuits away, arresting local governments’ legal right to their day in court, it’s certainly going to look like our state government is privately owned by the very people who are also demanding a handout from it.
Between oil taxes and royalty payments, the Louisiana budget gets about $750 million in revenue annually, an amount that will no doubt have to be made up with sales tax increases and cuts to higher education. When asked by the House Ways and Means Committee if it was wise to cut hundreds of millions of dollars from Louisiana’s budget, Rep. Phillip DeVillier, author of HB 506, got practically spiritual:
How do we deal with the loss?… I am of the opinion that when we tax something less, we will create more. So we will produce more. More jobs create income, income creates sales taxes. Possibly people buy homes which means property taxes. Those things build the tax base. We’re going to produce much more revenues.
The miracles in a free-market mind never cease. The irony is, when the budget cuts come, we will end up taxing eating and learning, and hence will get hungrier and dumber thanks to DeVillier’s theory.
But say if it were true: Say we quit all taxes and let all government wither on the vine. Live like beasts in the fields, hunt and gather amid the catalytic crackers and chemical plants, and in return we should get more of everything wonderful in our self-made, state of nature. In that state, the state of nature without governance, the British philosopher Thomas Hobbes tells us our lives will be “solitary, poor, nasty, brutish, and short.”
*EDITOR’S NOTE: SB 440, which would have killed parish lawsuits against oil and gas producers for wetlands damage, is apparently dead for the year, per reporting by our partners at The Times-Picayune/New Orleans Advocate.
From the author: “Leo Lindner taught English composition for three years at Nicholls State University, until the extravagant riches lavished upon him by the University of Louisiana System weighed on his conscience so heavily it encouraged him to take a position as a “mud engineer” in the oilfield. He worked on the Deepwater Horizon for five years with some of the finest people he will ever know. He is now retired and lives with his excellent wife, Sue.“
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