Sarah Magruder, founder, owner, president and CEO of Houston-based Savvy Oil & Gas Consulting, a company that specializes in severance tax and federal, state and sovereign royalties sees a lot of potential swings in levies and legislation around the corner.
In this exclusive interview, Magruder also discussed the potential for oil and gas companies to receive more incentives, tax credits and deductions coming as state and federal governments promote more environmentally friendly development with Nissa Darbonne, Hart Energy executive editor-at-large. Click here to view Magruder’s complete 25 Influential Women in Energy profile.
Nissa Darbonne: In your work, a lot of it is in severance taxes and royalty payments. Do you do you anticipate any change in severance tax rates, up or down, anytime in the near future?
Sarah Magruder: Absolutely. I feel like this is actually going to be a heavy area where we see some swings, especially because of the high prices that we've had recently. I think that a lot of states are going to be legislating and vying for production to come in. So you have states like Pennsylvania, which have never had a severance tax rate before, but it's on the legislative docket every year. So it's coming. It's just a matter of when and what rate they end up choosing and how that money's distributed. But also you have states like Louisiana that do a volume-based tax, whereas most states do a value-based tax. And again, with prices, what they've been, I expect that Louisiana's going to maybe flip too and some of the other states to a value-based tax to take advantage of this high price environment that we've had.
ND: At the same time too, with so much production becoming associated with CCS [carbon capture and storage], I'm wondering could there be maybe severance tax credit for the Btu, whether it be oil or gas, whether the Btu is carbon-neutral?
SM: I definitely think so. I think that a lot of the states with the carbon capture, with secondary and tertiary recovery and with the ESG initiatives we're seeing these days, I think a lot of the states and the federal government are going to be offering credits to incentivize companies to go that direction and to use that. So I expect we may see more taxation on that but also more incentives and tax credits and deductions around that. Everything is geared toward getting oil and gas companies to produce things more environmentally friendly and to use these resources we have better. So I definitely think we're going to see that everywhere.
ND: And I suspect that this is absolutely impossible, and I'm certainly not advocating for it, but could producers potentially at some point in the future possibly deduct their CCS cost from mineral owners’ royalties?
SM: I think they could. I think we could see almost anything at this point. And again, it's a way that all of the oil and gas companies and all of the incentives that are out there are to create a competitive environment and to create compliance. And so anything that does both of those things, that's good for the royalty owners and the states, the federal governments, the companies are all royalty owners that fall in that bucket. So I think that there will definitely be some of that coming along.
ND: And then the roughly, I would ask the next 10 years, and in the U.S. oil and gas industry, or maybe even just five years, what do you foresee the business will be different or maybe not different in five or 10 years?
SM: Well, I think that we're going to see in the next five to 10 years a reaction to the pricing environment that we've had recently with high prices. Again, I think we're going continue to see a lot of M&A activity, which creates a lot of upheaval in people's accounting. There's a lot of room for, for error and a lot of room for growth on both sides. But I also think, again, the states are going to be trying to catch up with the new technology and the secondary and tertiary recovery, the carbon capture and all of these things at the federal and the state levels. I believe there's going to be a lot of legislation around those trying to capture either the value or to incentivize companies to do things a certain way or come to that state to produce. And I think that all of that, along with the technology that we're seeing at y'all's conferences and everything else, every time I, you know, go through LinkedIn, I see a new technology that is out there that's reducing costs, that's allowing us to get to product we haven't gotten to before.
So I really believe our domestic production is going continue to grow with those technologies and that is going to just build the U.S. up and around that is always going to come legislation and trying to account for it.
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