Accounting for Louisiana Oil & Gas Companies

Louisiana is one of the largest oil and gas producing states in the country. With 15 refineries processing three million barrels of crude oil per day, more than 50,000 miles of pipelines, and 175 trillion cubic feet of recoverable natural gas in the Haynesville Shale, the state’s energy sector is a cornerstone of its economy. The Louisiana Economic Development’s 2026 Energy Strategy reported more than $61 billion in capital investment and over 9,300 direct new jobs with an average salary of $91,000 in 2025 alone.

For the businesses that operate in this sector — upstream producers, midstream pipeline operators, downstream refiners, and oilfield service companies — the accounting is not generic. Depletion, severance tax, joint interest billing, and cyclical revenue planning all require specialized knowledge.

This guide covers the accounting and tax considerations that Louisiana oil and gas companies face.

The scope of Louisiana’s energy economy

Louisiana’s oil and gas industry is not a single sector. It spans four major segments, each with its own accounting challenges:

Upstream (exploration and production). Companies that explore for and produce crude oil and natural gas. This segment includes independent producers, royalty owners, and working interest owners. Upstream employment in Louisiana was approximately 27,000 in 2024, down from roughly 50,000 in 2011–2014 as the industry shifted toward inland shale production.

Midstream (transportation, storage, and processing). Companies that move oil and gas from the wellhead to refineries and export terminals. This includes pipeline operators, storage facility owners, and processing plants. Southern Natural Gas Company, for example, operates approximately 6,830 miles of pipeline with a design capacity of 4.4 billion cubic feet per day, extending from Louisiana and Mississippi supply basins to markets across the Southeast.

Downstream (refining and marketing). Companies that refine crude oil into fuels, chemicals, and other products. Louisiana’s 15 refineries have the capacity to process three million barrels of crude oil per day. Downstream employment in Louisiana was approximately 39,000 in 2024, now exceeding upstream employment.

Oilfield services. Companies that provide drilling, wireline, pressure pumping, construction, and fabrication services to upstream operators. This segment is equipment-intensive and relies on job costing to measure profitability.

Accounting for exploration and production (E&P)

Louisiana E&P companies must choose between two accounting methods:

Successful efforts method. Costs associated with successful exploration are capitalized. Costs associated with dry holes are expensed immediately. This method is required for most public companies and is generally preferred by investors because it reflects the actual results of exploration.

Full cost method. All exploration costs are capitalized and amortized over the life of the reserves, regardless of whether individual wells are successful. This method is used by smaller independent producers and can smooth earnings.

The choice affects your balance sheet, income statement, and tax return. A CPA with E&P experience can model both and recommend the right approach for your company.

Depletion

Depletion is the oil and gas equivalent of depreciation. It allocates the cost of mineral reserves over the period they are produced. Two methods are available:

Cost depletion. The cost of the property is divided by the estimated recoverable reserves, then multiplied by the units produced during the year.

Percentage depletion. Louisiana allows a deduction of 22% of gross income from the property, capped at 50% of net income. This is available to independent producers and royalty owners, not integrated companies.

Most independent Louisiana producers use percentage depletion when it exceeds cost depletion. A CPA calculates both and uses the one that produces the better result.

Louisiana severance tax

Louisiana imposes a severance tax on oil and natural gas extracted from the state.

The state offers reduced rates for certain wells:

• Incapable wells: Reduced rate for wells that produce below a certain threshold.
• Stripper wells: Reduced rate for low-volume wells.
• Orphan wells: Reduced rate for wells abandoned by previous operators.

Severance tax returns are filed monthly with the Louisiana Department of Revenue. Missing a filing or miscalculating the tax triggers penalties and interest.

Accounting for midstream pipeline operators

Midstream companies — like Southern Natural Gas Company — operate under a different accounting framework. Their operations are regulated by the Federal Energy Regulatory Commission (FERC) under the Natural Gas Act of 1938. This regulatory framework affects almost every aspect of their accounting.

Regulatory assets and liabilities. FERC-regulated pipeline companies record regulatory assets and liabilities that would not be recorded by non-regulated entities. These represent probable future revenues or expenses associated with certain charges and credits that are expected to be recovered from or returned to customers through the ratemaking process. Southern Natural Gas reported $26 million in regulatory assets and $74 million in regulatory liabilities as of December 31, 2025.

Revenue recognition. Pipeline revenue comes from firm service contracts (take-or-pay reservation fees) and fee-based service contracts (interruptible services). Under firm service contracts, the customer is subject to a fixed fee for the right to use the pipeline, and revenue is recognized ratably over the service period. Under fee-based contracts, revenue is recognized as each unit of service is transferred.

Contract balances. Pipeline companies often have contract assets and contract liabilities resulting from timing differences between revenue recognition, billings, and cash collections. Southern Natural Gas reported $10 million in contract assets and $3 million in contract liabilities as of December 31, 2025.

Postretirement benefits. Many midstream companies provide postretirement benefits to former employees. Southern Natural Gas reported $79 million in fair value of plan assets and a net asset of $68 million as of December 31, 2025. The accounting for these plans requires actuarial assumptions including discount rates, expected returns on plan assets, and healthcare cost trends.

Fair value measurement. Postretirement plan assets measured at net asset value (NAV) require significant judgment. The fair value of investments measured at NAV was $78 million of the $79 million total for Southern Natural Gas.

Accounting for oilfield service companies

Oilfield service companies — drilling contractors, wireline services, pressure pumping, construction, and fabrication — face a different set of accounting challenges.

Job costing

Job costing tracks revenue and expenses at the project or well level. It is the single most important accounting practice for an oilfield service company.

Without job costing, you cannot answer basic questions:

• Which jobs are profitable?
• Which customers are worth keeping?
• Which equipment is earning its keep?
• Where is margin leaking?

A CPA helps set up job costing in your accounting software, defines the cost categories, and produces job-level profitability reports.

Equipment depreciation

Oilfield service companies are equipment-heavy. Drilling rigs, trucks, pumps, and tools are expensive and depreciate quickly. The tax rules for depreciation — Section 179, bonus depreciation, MACRS — have a significant impact on cash flow.

A CPA helps you:

• Maximize depreciation deductions
• Time equipment purchases for tax advantage
• Track basis and recapture when equipment is sold
• Manage Section 179 limits (which phase out above certain thresholds)

Crew payroll

Oilfield service companies employ crews that work long hours, often in remote locations. Payroll rules — overtime, per diem, travel time, and shift differentials — are complex. Misclassifying workers or miscalculating overtime triggers penalties and back taxes.

A CPA with oilfield payroll experience ensures that crews are paid correctly and that payroll taxes are filed on time.

The employment picture: upstream vs. downstream

Louisiana’s oil and gas employment has shifted dramatically over the past decade. The data tells a clear story:

Upstream employment has declined. From 2011 to 2014, Louisiana maintained roughly 50,000 jobs in upstream industries. By 2024, employment had fallen to 27,000 — about 1.6% of total state employment. The hydraulic fracturing boom shifted the industry’s focus away from offshore exploration toward inland shale regions, most notably the Permian Basin in Texas.

Downstream employment has grown. At 39,000 jobs in 2024, Louisiana’s downstream employment now exceeds upstream employment. Chemical manufacturing has added jobs nationally and at an even faster rate within Louisiana.

Employment concentration remains high. Louisiana has the highest concentration in both downstream manufacturing industries — petroleum and coal products manufacturing (location quotient of 8.1) and chemical manufacturing (location quotient of 2.6) — as well as high concentrations in upstream industries like support activities for mining (location quotient of 6.6) and oil and gas extraction (location quotient of 3.9).

Oil and gas jobs pay well. Average annual earnings in 2024:

These numbers matter for accounting because they reflect the value of the workforce that oil and gas companies employ and the payroll tax obligations they incur.

Louisiana-specific tax considerations

Beyond severance tax, Louisiana oil and gas companies face:

Ad valorem tax on inventory. Louisiana imposes property tax on oil and natural gas inventory held by manufacturers, distributors, and retailers. The inventory tax credit offsets some of this cost, but the rules are complex.

Industrial Tax Exemption Program (ITEP). Louisiana offers property tax exemptions for manufacturers, including some energy-related facilities. Qualifying for and maintaining ITEP requires careful documentation and reporting.

Louisiana Quality Jobs Program. This program offers cash rebates and tax credits for businesses that create high-paying jobs. Energy companies often qualify.

Enterprise Zone program. Similar to Quality Jobs, this program offers tax credits for businesses that locate in designated areas.

Corporate income tax. Louisiana’s corporate income tax rate is a flat 5.5% for tax periods beginning on or after January 1, 2025. The franchise tax was repealed for periods beginning on or after January 1, 2026.

Pass-through entity tax election. S corporations and partnerships can elect to pay Louisiana income tax at the entity level at a flat 3% rate. This can benefit owners who are limited in their SALT deduction on their federal return.

A CPA with Louisiana tax experience helps you identify and claim these credits and exemptions.

Recordkeeping for oil and gas companies

The records an oil and gas company must keep go beyond the standard requirements. In addition to income and expense records, you need:

• Well records: Drilling reports, completion reports, production data, and lease operating statements.
• Revenue records: Division of interest statements, royalty payments, and joint interest billing.
• Equipment records: Purchase documents, depreciation schedules, and disposition records.
• Payroll records: Crew timesheets, payroll tax filings, and W-2s.
• Tax records: Severance tax returns, property tax filings, and income tax returns.
• Regulatory records: FERC filings, Louisiana Department of Natural Resources reports, and environmental compliance records.

The IRS requires that these records be kept for at least three years after the return is filed. Employment tax records must be kept for at least four years. Records related to assets must be kept until the period of limitations expires for the year the asset is disposed of.

A note on the energy transition

Louisiana’s oil and gas industry is evolving. The Louisiana Economic Development 2026 Energy Strategy identifies eight priorities, including expanding the industrial base, winning global investments, delivering strategic energy solutions, and unleashing energy innovation. The state is positioning itself as a leader not just in traditional oil and gas, but in LNG, carbon management, hydrogen, nuclear, and rare earth minerals.

For accounting purposes, this means that oil and gas companies may need to account for new types of transactions: carbon capture credits, hydrogen production tax credits, and renewable fuel standard credits. A CPA who understands both the traditional industry and the emerging energy economy is a valuable partner.

When to bring in an oil and gas CPA

You should work with an oil and gas CPA if:

• You own working interests or royalty interests
• You operate wells in Louisiana
• You provide oilfield services
• You are buying or selling oil and gas properties
• You are restructuring or planning for succession
• You have severance tax obligations
• You are planning equipment purchases or sales
• You are evaluating carbon management or other energy transition opportunities

The cost of an oil and gas CPA is small relative to the cost of getting the accounting and tax wrong.

The bottom line

Louisiana oil and gas companies face accounting and tax challenges that require specialized expertise. Depletion, severance tax, job costing, equipment depreciation, and cyclical revenue all demand a CPA who understands the industry.

If your Louisiana energy business is growing, facing a tax issue, or planning a major transaction, work with a CPA who has oil and gas experience. The value of correct accounting is measured in more than tax savings — it is measured in better decisions, stronger cash flow, and a more valuable business.

Louisiana CPA Hub is an independent referral service. It is not an accounting firm and does not provide tax, accounting, legal or financial advice.