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Energy Outlook: State Legislative Sessions Convene

State legislatures kicked off their 2019 sessions this month with a variety of issues that could impact the oilfield services and equipment sector.

While the Texas economy continues to grow at a record level, the state’s Comptroller Glenn Hegar cautioned lawmakers ahead of the legislative session that fluctuations in oil and gas revenues could impact the state’s financial outlook. Oil and gas revenues were down by 40% in 2016, but rebounded nearly 60% in 2017. State House and Senate members are advocating for the state to use a portion of the extra revenue for local education needs, lessening the property tax burden faced by Texans. The legislature might also focus on eminent domain issues, due to pipeline projects in the Permian, as well as water-related matters.

With a power shift to the left after November’s elections, Democratic lawmakers in the state, including new Gov. Jared Polis, have promised to address climate change during the session. Proposed legislation includes greater use of electric vehicles, as well as increasing solar and wind power with a goal of the state using 100% renewable energy by 2040. Lawmakers are also investigating different ways to regulate the oil and gas industry, including the creation of a commission to more closely oversee health and safety concerns at the wellsite. Polis has hinted that he would allow more power to local authorities to negotiate drilling locations.

Although state coffers are full due to record high energy production in New Mexico, many in Santa Fe are calling for an increase in taxes to help diversify the state’s revenue stream. With the cyclical nature of the oil and gas industry in mind, lawmakers are looking at several possibilities for tax increases, including gross receipts, income and property taxes. The state currently relies heavily on gross receipts taxes, and the majority of those taxes are collected in just two counties – Lea and Eddy, home of the Delaware Basin.

Last year’s fight over the state’s gross production tax, which increased from 2% to 5%, showed industry leaders that many lawmakers are willing to squeeze more tax revenue out of the industry. This price-sensitive tax led to the state collecting 84% more revenue in 2018 over 2017, but new Republican Gov. Kevin Stitt has warned Democratic lawmakers not to view the surplus as a blank check for spending. With education funding at top of mind, industry leaders will continue to push legislators to find an alternative source of revenue to resolve possible future state shortfalls.



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