Two bills that would provide sizable tax breaks to oil companies involved in Southwest Mississippi hydraulic fracturing activity are making their way through the Legislature. With less than three weeks before the end of the 2013 session, there are noticeable differences between the bills that must be resolved.
Companies seek a reduction in severance taxes for horizontally drilled wells that use fracking to recover oil because of the high cost for a single well — between $10 million and $15 million. Fracking procedures are being tested in Amite and Wilkinson counties, which are located in the Tuscaloosa Marine Shale formation.
Many of the differences between the two bills seem solvable. House Bill 1698 cuts the state severance tax to 1.5 percent for the first 24 months of a well’s production. A well must begin production before July 2015 to get the tax break.
Senate Bill 2907, meanwhile, sets a slightly lower 1.25 percent severance tax rate and allows 30 months for a well to be in production before increasing the tax to the standard 6 percent. That gives companies six months more at the lower tax rate. The Senate bill also makes the tax break available for five years, applying to any horizontally drilled well that begins production before July 2018.
There is one notable difference between the two bills. House Bill 1698, whose three sponsors include Rep. Angela Cockerham, D-Magnolia, and Rep. David Myers, D-McComb, requires anyone planning horizontal drilling to post a $1 million performance bond with the Secretary of State’s office before they start work.
The bill says the bond money would be paid “to the county in which a well is drilled if the operator of the well fails to reasonably assist the county with paying the costs of maintenance and repair of roads in the county that are damaged due to vehicle traffic related to drilling and production of the well.”
Actually, the performance bond language is no longer in the House bill. The Senate removed it on Monday. However, the House took the Senate’s bill and inserted the bond language there. Each chamber also put its own tax break and time lengths on the other’s bill.
On Wednesday the Senate rejected the House’s changes and asked for the differences to be cleared up in a conference committee. Assuming both bills go to conference, that panel’s task is to craft a solution acceptable to both chambers in a single bill.
The original Senate bill, whose authors include Sen. Melanie Sojourner, R-Natchez, and Sen. Kelvin Butler, D-McComb, clearly is more generous to the oil companies. An oil well’s tax break would last longer, the tax rate would be slightly lower and companies would have five years to start drilling. Plus there are no performance bond requirements for road repairs.
The oil companies and their advocates say other regions of the country involved in fracking have approved similar tax breaks. It makes sense for Mississippi to remain competitive with these areas. Local lawmakers don’t have a whole lot of time left to work out their differences.