Article
Brochure
Executive Resource
Insight Hub
Video
Ext. PublicationLouisiana and Texas Severance Tax Legislation Changes: What You Need to Know
Never miss a thing.
Sign up to receive our Tax News Brief newsletter.
As energy companies seek to lower costs and maximize production, recent severance tax changes in Louisiana and Texas could create new savings opportunities, especially for those drilling new wells or reactivating older ones. With incentives aimed at encouraging investment in marginal or inactive wells, companies should understand the changes and what they could mean for operations.
Louisiana: Tax Incentives for New and Marginal Oil Wells
On June 11, 2025, the governor signed House Bill 600 (Act 295) into law, ushering in some of the most impactful severance tax reforms the state has seen in years. Effective July 1, 2025, new oil wells will benefit from a reduced severance tax rate of 6.5% on oil production, down from the previous 12.5%. The base rates for natural gas remain unchanged and will continue to be adjusted annually. For the period of July 1, 2025-June 30, 2026, the severance tax rate for gas is set at $0.1052 per thousand cubic feet (MCF).
The legislation also introduces reduced severance tax rates for certain incapable, inactive and orphan oil wells. These incentives are designed to promote the reactivation of marginal or idle wells, with tax reductions available up to 10 years following qualification.
In parallel with House Bill 600, House Bill 495 (Act 284) was also enacted. This bill shortens the exemption period for horizontal gas wells from 24 months to 18 months, while keeping the exemption period for horizontal oil wells unchanged at 24 months.
Reduced tax rate criteria for Louisiana oil wells
The table below outlines the reduced tax rates and qualification criteria for various types of oil wells in Louisiana:
| Incapable wells | Oil wells producing ≤ 25 barrels/day and ≥ 50% saltwater | 6.25% | Must meet both production and saltwater threshold |
| Incapable multiwell lease | Same as above but on a multiwell lease | 6.25% | All wells on the lease must qualify as incapable |
| Stripper oil wells | Producing ≤10 barrels/day | 3.125% | Must meet production limit |
| Inactive oil wells | Inactive ≥2 years | 3.125% (before October 1, 2028) | |
| 6.25% (on/after October 1, 2028) | |||
| Orphan oil wells | Inactive ≥5 years | 1.565% (before October 1, 2028) | |
| 3.125% (on/after October 1, 2028) |
The term "incapable well" is specific to Louisiana and is equivalent to what other states may call "marginal," "low-producing" or "stripper" wells. In Louisiana, an incapable well is defined as an oil well that produces less than 25 barrels of oil per day and has a saltwater production rate exceeding 50%.
Texas: New Exemption for Restimulated Wells
On June 20, 2025, the governor signed House Bill 3159 into law, establishing a new severance tax exemption for oil and gas produced from restimulated wells in Texas. This applies to wells that were previously active, went inactive (with no reported production for 12 consecutive months or more) and have since been brought back online. To qualify, the well must have produced for at least 60 months prior to becoming inactive and cannot be part of an ongoing enhanced recovery project or a well that was drilled but never completed.
The exemption offers up to 36 months of severance tax relief or until the cost of the restimulation, which is capped at $750,000, is recovered in tax savings, whichever occurs first. Like other Texas severance tax exemptions, the well must be certified by the Railroad Commission of Texas and then approved by the Texas Comptroller. This incentive will apply to oil and gas production beginning January 1, 2026.
Weaver Can Help
If you're evaluating how these changes might affect your operations on drilling new wells or reviving older ones, now is the time to plan ahead. Weaver’s tax team can help with guidance on filing, deductions or compliance strategies. Contact us today.
Authored by Mayur Naik and Tanner Owens
©2025
