Louisiana has a serious litigation problem when it comes to the state’s economic growth. Economic theory indicates that with increased risk of lawsuits against oil and gas producers comes less investment, and more specifically, less drilling activity. When the risk of getting sued increases, the expected costs faced by companies increases and as a result, drilling activity decreases.
This has a direct impact on the state’s economy. We discovered that between 53 and 74 fewer oil wells were drilled offshore Louisiana than would have been drilled if the threat of lawsuits was lower in the state. According to our estimated range, Louisiana’s economy loses $44.4 million to $113.0 million per year due to lawsuit risk.
These estimated ranges are conservative, because we underestimated the effect as different assumptions were made throughout the analysis. For example, we only focused on Louisiana state offshore drilling, because it was the only region in Louisiana that was both affected by increased litigation risk and could be compared to a reasonably similar drilling region that was not affected by increased litigation risk – the federal offshore drilling area that is adjacent to the Louisiana state offshore drilling area. Our estimate of the minimum economic loss associated with coastal lawsuits is $44.4 million per year.