JACKSON, MISSISSIPPI — Energy exploration companies that do horizontal drilling in Mississippi will pay 80 percent less in taxes next year on oil and gas they extract.
The prospect of an economic bonanza from extracting shale oil from below ground in Mississippi, especially the southwest part of the state, led Gov. Phil Bryant to make the tax cut part of his Energy Works: Mississippi’s Energy Roadmap plan.
In his recent signing of a measure cutting the severance tax rate from 6 percent to 1.3 percent, Bryant predicted the lower rate will position Mississippi among the “most competitive states in the nation when it comes to attracting companies that explore and develop shale plays.”
The tax cut applies to 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. Service and supply companies that contribute to the plays will also be eligible for the lower rate.
Bryant noted several geologic formations in Mississippi have significant potential for oil and gas production using horizontal drilling. One in particular – the Tuscaloosa Marine Shale — is quickly drawing attention and investment to the state.
The Tuscaloosa Marine Shale development in Southwest Mississippi is projected to produce a very high-quality oil at substantial quantities, Bryant said, and noted experts anticipate that once full-scale production commences, the Tuscaloosa development will be one of the most active shale plays in the United States.
Encana, a Canadian producer of natural gas, oil and natural gas liquids, is among several energy companies doing preliminary drilling tests in the play.
Encana praised the tax cut in its first quarter earnings report, saying it adds to the commercial viability of its work in the Tuscaloosa Marine Shale pay. “This five-year program supports the pursuit of commerciality by positively impacting Encana’s economics for the emerging Tuscaloosa Marine Shale play (TMS),” the company said.
“With six wells producing in the TMS and two additional wells expected to begin production in the second quarter of 2013, the company is gaining confidence in the potential of the play as it nears commerciality,” added Encana, created through the merger of PanCanadian Energy Corporation and Alberta Energy Company Ltd. in 2002.