(The Center Square) – Oil and gas producers in Louisiana could pay lower royalties to drill on state lands under a new plan released by the Louisiana Department of Conservation and Energy.
Under the 2026 State Lease Investment Program, royalty payments on new and existing mineral leases on state lands could be cut in half. The period for public comment is open through Jan. 28.
The program was developed to fulfill directives in an executive order signed by Gov. Jeff Landry in June that aims to increase production. In south Louisiana and the state’s offshore areas, total annual oil production fell from 58 million barrels in 2013 to 26 million barrels in 2023, or by 58% in 10 years, according to the executive order.
By incentivizing exploration and production through targeted royalty adjustments and severance tax reforms, Louisiana will stimulate increased investment and activity in the oil and gas sector, leading to higher production volumes that ultimately generate greater overall revenues despite initial rate reductions, Landry said in the executive order.
“Our staff have proposed a way to prime the pump on investing here by giving companies a financial decision that is easier to make in favor of drilling and producing here,” Louisiana Conservation and Energy Secretary Dustin Davidson said.
Typically, companies drilling on state lands in recent years have paid royalties of between 20% and 25%.
The proposal would establish a process that allows the State Mineral and Energy Board to reduce royalties on existing leases by up to 8%, but never to a rate below the statutory floor of 12.5%. Over the next five years, the Board could reduce royalties by up to 8% for new wells, wells inactive for more than six months and wells classified as orphaned by the Department of Conservation and Energy.
Additionally, the Board “will give substantial consideration to the ideals” of the governor’s executive order “when evaluating bonus, rental, and royalty bids for tracts nominated at its monthly mineral lease sales, including consideration of bids below traditional rates,” under the proposal.
The royalty reduction incentives provide a promising foundation for the legislature’s severance reform package passed during the 2025 session, according to Conservation and Energy Office of Natural Resources Executive Director Andrew Young. The legislation reduced the severance tax rate paid for production on state lands from 12.5% to 6.5%, beginning last July.
“This was an opportunity for policy alignment between the Board and the Legislature, sending a combined signal welcoming investment in Louisiana’s proven oil and gas fields” Young said. “The goal is to stimulate new activity by reducing economic barriers to entry.”
The move follows a decline in revenue collections. In the 2024 fiscal year, Louisiana’s mineral revenue collection, consisting of $828 million in severance taxes and $132 million in royalties, totaled $960 million. In the 2025 fiscal year that ended June 30, the collection dropped to $445 million, largely due to a significant decline in oil prices, according to data provided at the Louisiana Revenue Estimating Conference.
The initial forecast for total mineral revenues in the 2026 fiscal year was approximately $715.5 million, though recent data indicates current collections are running higher than initially expected.
