Calculations of taxable value (taxes) for oil and gas properties in Louisiana are grouped in five major categories: Wellbore, Surface Equipment, Tanks, Pipelines, Inventories, Field Improvements, and Other.
Wellbore:
For the "Well" the LAA proposed a change for horizontal wells. Currently the valuation is based on the Total Vertical Depth (TVD). The proposal would change that to the distance to the last perforation. Depending on the length of the lateral this would significantly increase the taxable value for a well.
They also proposed that downhole equipment will include all of the costs to drill and equip a well, including ALL tangible and intangible costs.
The LAA proposed the current economic adjustments for stripper (up to 84% reduction), incapable (40% reduction), service (40% reduction), and shut-in (90% reduction) wells be changed to a schedule based on production level in each region of Louisiana.
Under the proposal, well and equipment depreciation schedules would increase from 20 years to 23 years and raise the depreciation floor from 20% to 30%. The effect of this change would increase the time it takes to fully depreciate oil and gas properties and increases the valuation of older properties that are fully depreciated.
Surface Equipment and Tanks:
The proposal includes an increase to include installation costs. If the taxpayer does not, or cannot, provide the installation costs, then the assessor will estimate the costs and add them to the equipment values.
The proposal also INCREASES the standard surface equipment schedule by 2% and then installation cost would be added.
The proposal also revises the language regarding the age of equipment. For 2016 the age of the equipment was to be provided if it was available. If the age could not be determined, the equipment would be depreciated based on the age of the well or the average age of the wells a facility services. The proposed wording now states that the actual age must be provided on items with a cost of $2,500 or more. There is no proposal if the age of the equipment is unknown.
Pipelines:
The proposal increases the depreciation schedule for pipelines from 26.5 years to 35 years. It also raises the depreciation floor from 20% to 30%.
We would like to thank Ken Cariker of Affiliated Tax Consultants for allowing us to use material he developed to prepare this article. To view more details regarding the proposals and rebuttals on the Louisiana Tax Commission website click here.
