Legislation that will dramatically reduce the state's tax rate for oil and natural gas companies that use horizontal drilling was recently signed into law. Gov. Phil Bryant affirmed House Bill 1698 on April 23, advancing a major component of his Energy Works: Mississippi's Energy Roadmap plan.
"Mississippi has been ranked a top location for oil and gas investment internationally and this severance tax reduction builds upon our already strong positioning among the most competitive states in the nation when it comes to attracting companies that explore and develop shale plays," Governor Bryant said. "It positions our state as a top contender for significant company investments and job creation in this market sector. Mississippi's low tax rate structure and business friendly environment make the state an ideal location for companies investing in oil and gas exploration, as well as the service and supply companies that contribute to those plays."
This bill will reduce the severance tax from 6 percent to 1.3 percent, a reduction of almost 80 percent, for oil and gas extracted from horizontally drilled wells for a period of 30 months or until the payout of the well. The legislation applies to all qualified horizontally drilled wells between July 1, 2013 and June 30, 2018.
While there are several geologic formations in Mississippi with significant potential for oil and gas production using horizontal drilling, one in particular is quickly drawing attention and investment to the state. The emerging Tuscaloosa Marine Shale development in southwest Mississippi is projected to produce a very high-quality oil at substantial quantities. Experts anticipate that once full-scale production commences, the Tuscaloosa Marine Shale will be one of the most active shale plays in the United States. Several companies are currently undergoing preliminary drilling tests in the play, working to refine the extraction techniques appropriate for the Tuscaloosa Marine Shale.
Oil and gas developments using horizontal drilling technology, such as the Tuscaloosa Marine Shale, can help reduce the country's dependence on foreign sources, increase its domestic energy supply, lower costs and create thousands of high-paying jobs that will positively impact local communities.
"Recognizing the fierce competition for capital dollars in the U.S. onshore energy marketplace, Mississippi's leaders have taken a bold step in better positioning the state to capture the benefits of the American energy renaissance relative to tight oil and shale gas," said Lem Smith, director of U.S. Government and Regulatory Affairs for Encana Oil and Gas (USA) Inc.
"Technological advancements in horizontal drilling and hydraulic fracturing have led the way in enabling the nation to be less dependent upon foreign oil sources, and formations like the Tuscaloosa Marine Shale in southwest Mississippi stand to benefit from this new, targeted and carefully-crafted tax policy," said Smith.
Governor Bryant tasked the Mississippi Development Authority (MDA) with executing his strategies for energy-related economic development. MDA promotes the state's energy-related economy utilizing four targeted approaches: Responsible Resource Exploration and Extraction; Energy-Intensive Industry Recruitment; Energy Systems Component Manufacturing; and Biomass Development.
"The Tuscaloosa Marine Shale in southwest Mississippi has the potential to provide remarkable opportunities for the region's residents and the state as a whole. The passage of the severance tax reduction bill will help attract corporate investment, support economic growth and spur job creation throughout the region," said MDA Executive Director Brent Christensen. "I thank Governor Bryant and the State Legislature for taking steps to improve our competitiveness and aggressively recruit new energy development and investment to this state."
This severance tax reduction is one of several laws enacted under Governor Bryant's landmark energy legislation in 2013. To learn more about energy initiatives in Mississippi, please visit http://www.mississippi.org/energy-works. To learn more about the benefits of a Mississippi location, please visit http://www.mississippi.org/locate-in-mississippi/.