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The April 20, 2010, explosion on BP’s Macondo deepwater well shattered the political myth that for decades had protected the oil and gas industry here from serious scrutiny. The moratorium on deepwater drilling provided the industry an opportunity to try to pull that myth together again.

The Louisiana Oil & Gas Association seized that opportunity with gusto.

The Louisiana Oil and Gas Association’s anti-moratorium campaign was an economic fear campaign based on projections about the moratorium’s impact that were, in retrospect, so wildly wrong that one must question whether the estimates had any purpose other than serving as propaganda tools.

Whatever LOGA thought it won in 2010, it has since set out to squander. In 2011, LOGA defended a 17-year-old severance tax exemption on oil and gas extracted using fracking by using an economic study from one of its frequently hired economists. The Haynesville Trend had established itself as the most productive shale gas field in the country but revenue shortfalls were regularly forcing devastating cuts to education and health care.

Still, LOGA argued that collecting that tax threatened the life of the Haynesville field.

This year, LOGA is back with another study that says holding the industry accountable for the environmental damage their drilling practices have inflicte is too great a burden for industry to bear.

LOGA’s dishonest approach makes explicit an idea that, until a few years ago, few would have dared speak publicly — namely that the interests of the industry and the interests of the state are separate and distinct.

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“Over the past four years, the Haynesville Shale has brought thousands of direct jobs and created billions of dollars in new business sales for the state of Louisiana,” said Don Briggs, Louisiana Oil and Gas Association president. “The Haynesville Shale is responsible for stabilizing the state economy during a trying financial climate in the United States. While the rig count has split in half from its peak of 139 in 2010 to now around 60 rigs in north Louisiana, we will see certain companies remain in the Haynesville for years to come.”
Parishwide sales tax collections during fiscal year 2010-11 zoomed past $120 million, blasting the previous year’s collections of $84 million. To date this year, more than $68 million has been collected, which is about $9 million less than this time a year ago.

DeSoto schools officials already are working behind the scenes on the 2012-13 budget, and because it’s early in the process, they don’t know fully what effect the slowdown in the Haynesville Shale will have on the bottom line.

But with anticipation of less revenue, the school system is working in a “downward trend mode in relation to expenditures,” schools Superintendent Walter Lee said.

The result may be lower supplemental payments to employees and the elimination of a half-dozen teaching positions.

The school district is far from broke, however. The DeSoto School Board has been able to sock away more than $44 million into an employee benefits trust account and earmark $14 million in the general fund reserve account.

An additional $22 million is in the bank to cover proposed construction of a new central office and a career academy, although plans for the latter are on hold until school leaders learn the extent of any effect from proposed statewide school reform measures.

However, since the Haynesville Shale’s presence was made public, there’s always been a warning: the explosion of leasing and drilling would slow down one day. And that time appears to have arrived.

This month marks the fourth anniversary of the shale’s announcement, and it is expected to mark a significant turn in activity.

Record low natural gas prices because of an abundant supply from shale plays and an unusually mild winter have oil and gas companies scurrying to oil and natural gas liquids plays that will produce greater profit margins.

That doesn’t mean the Haynesville will be ignored. Companies such as Chesapeake, EnCana and Shell are slicing their rig counts in northwest Louisiana, but they continue to service the thousands of wells already drilled here.

Industry officials predict once gas prices rise and stabilize, the dry gas fields like the Haynesville will be hot again, especially as markets are developed overseas for liquefied natural gas.

He added: “The rig decline and low natural gas prices are due to a simple national supply and demand issue. However, we are encouraged that as the price of natural gas stabilizes, a massive amount of shale gas remains for exploration and production. With the recent talk of exporting LNG, the Haynesville Shale will play a critical role in this process.”

Dry gas retreat

Announced cutbacks from oil and gas companies started earlier this year.

Chesapeake Energy, the largest leaseholder in the play, started the trend and in its quarterly report said the rig count in dry gas plays would be cut from 75 nationwide to 24, which includes 12 rigs in the northeastern part of the Marcellus Shale and six each in the Haynesville and Barnett shales.

“The challenge we face is to find the right balance given the current price of natural gas and like our fellow operators in the Haynesville, Shell has scaled back its drilling program,” said James Blanton, operations manager at Shell’s DeSoto Parish office. “Interestingly enough, our 2012 plans are consistent with the level of activity we were at when we first entered the play or a bit better based on the number of wells drilled.”

To elaborate on what Paul Goodfellow, vice president of development, said in early October, the reduction in rig count may cause some to be concerned, but the number of wells being drilled is a better gauge, Blanton said. Shell has about 200 wells.

“Again, Shell enters these plays with a long-term view, which enables us to adeptly modify when necessary, so we can continue to manage a reasonable drilling program,” he added. “Our employees are focused on production and the Haynesville play still remains an active asset in Shell’s North American onshore portfolio.”

EnCana Oil & Gas boasted of one of its “best operational years ever,” said Randy Eresman, president and chief executive officer. But those accomplishments are overshadowed by the oversupply of natural gas.

“Although a litany of factors has caused the oversupply, it is abundantly clear that a continued reduction of drilling activity will be required to restore market balance,” Eresman said in a prepared statement. “For the industry as a whole, near-term natural gas prices are at levels below what it costs to add most new production, and in some places, may even be below what it costs to produce from existing wells.

“Although we continue to believe that the long-term future for natural gas remains promising, until we see signs of a sustainable recovery in natural gas prices, we will be reducing our pace of natural gas development and slowing down production from some of our natural gas wells to preserve value.”

EnCana’s plan calls for slowing down or shutting in production from existing well bores. How long that will last is unknown.

EXCO Resources will drop from 22 to nine rigs in the Haynesville Shale this year, said Douglas H. Miller, chief executive officer.

Matador Resources, a small player in the shale, plans to allocate 6 percent, or about $18 million, of its 2012 budget to natural gas-related activities, primarily in the Haynesville Shale. The company does not plan to drill any operated Haynesville wells this year, according to a company report.

Comstock Resources said last month that it was exiting the Haynesville this month to focus on the oil-rich Eagle Ford Shale in south Texas. Half of its revenue is expected to come from oil this year instead of dry gas, which was the opposite a year ago.

Leveling off

DeSoto Parish tax collection agencies anticipate a leveling off of sales taxes at some point, but no one knows what the level will be.

With new restaurants, businesses and hotels dotting the parish, revenue is projected to be greater than the pre-shale days. Factored into that, of course, will be the fact that less money will be spent locally because of the exodus of oil and gas workers.

For now, parking lots at the three new hotels in Mansfield remain full, and lunch and supper hotspots still are popular. Noticeable is a slight decrease in truck traffic, and more slots are open at the various RV parks that popped up to meet the demand of the itinerant work force.

For the School Board, which collects 2.5 cents on every $1 spent, that equates to $41 million so far this year, a $6 million drop over a year’s time.

“It’s been going down for the last two or three months. But for the last month “» it’s down but very little compared to last year at this time,” Lee said. “So it’s too early for us to tell if it is going to level off and where it’s going to level off. We don’t know if it’s leveling off now or if this is an unusual month or if we will drop off at a higher rate next month.”

School Board Finance Director Steven Stanfield said the amount shifted into the state-mandated employee post employment trust varies annually because it is dependent upon sales tax collections. Once collections meet operations, then 20 percent of the additional funds go into the trust.

Pay supplements, which are not guaranteed income, are only handed out when excess funds accumulate. DeSoto’s employees were fortunate to receive $8,500 in supplemental payments last year, which cost the system just more than $4 million.

Lee anticipates the May check may be trimmed to $2,500, compared to $5,000 in December. “But we’ll see how it looks in another month or two. That will help us determine if need to make other plans.”

As for overall expenditures in the wake of declining sales tax revenue, “We’re watching it, and we’re just making sure as we need to cut back we will.”

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Natural gas is a game changer for the U.S. economy according to PIMCO’s Mark Kiesel (via Josh Brown). The report says:

“The energy sector is growing more quickly than the overall economy in numerous areas around the globe due to supportive long-term demand fundamentals from the emerging markets and emerging global supply sources. In the U.S., the use of new drilling technologies for onshore natural gas and oil production is a potential “game changer” for U.S. energy security and an improved economy.”

But how exactly is natural gas a game changer?

First, it’s lowering costs. Onshore shale natural gas production has surged in areas like Marcellus, Haynesville, Fayetteville and Barnett formations. Natural gas output has increased to 22.7 trillion cubic feet (tcf) in October 2011, from 20.2 tcf in December 2007.  This has helped push down nat gas prices, and is expected to lower heating costs in the future.

Moreover, this will also make the U.S. less energy reliant. Nat gas imports have fallen to 1.7 tcf today, from 4 tcf in 2008. U.S. nat gas prices are also cheaper relative to international prices.

Second, U.S. annual upstream (exploration, recovery and production) and infrastructure capital expenditure on shale gas is projected to grow to $48.7 billion in 2015, from $33.3 billion in 2010,.

This is expected to increase “direct, indirect and induced” employment in shale gas to 869,684 employees in 2015, from 601,348 employees in 2010. Moreover, employment and private sector business investment in industries like fertilizer, chemicals, manufacturing, etc., is expected to increase. Kiesel says investment by chemical companies in the Gulf Coast is recovering and manufacturing plants are returning to the Midwest to take advantage of low natural gas prices.

The upshot seems to be that the U.S. could overtake Russia to become the world’s biggest energy producer in the next 10 years if it continues to boost natural gas and oil production. For now though, oil represents a greater portion of the U.S. economy’s energy demand, than gas.

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Exco Resources Inc posted a lower-than-expected adjusted quarterly profit hurt by depressed natural gas prices, and said it plans to significantly reduce drilling during the year.

The Dallas-based company said it plans to operate an average of nine rigs in the Haynesville shale and three in Marcellus, down from 22 and four, respectively.

The company, which outlined a 2012 budget of $470 million, said it estimates net production to average about 500 million cubic feet of natural gas equivalent (mmcfe/d) per day, lower than the 552 mmcfe/d it produced last year.

Net loss widened to $166.6 million, or 78 cents a share, from $72.8 million, or 34 cents a share, a year ago.

On an adjusted basis, the company earned 9 cents a share.

Revenue rose about 30 percent to $179 million.

Analysts on average had expected the company to earn 17 cents a share, according to Thomson Reuters I/B/E/S.

Shares of the company closed at $7.27 on Thursday on the New York Stock Exchange. The stock was down 2 percent in extended trade.

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The oil and gas industry has made technological strides in recent years, but exploration and production are threatened

by government regulation and by lawsuits, a trade group leader said Thursday.

“We are at a major point in the oil and gas industry,” said Don Briggs, president of Louisiana Oil and Gas Association. “We are right in the middle of history being made.”

The United States — the world’s No. 3 oil producer and No. 1 consumer — imports 47 percent of its crude oil, he told a lunchtime

audience at Reeves Uptown. If the U.S. were ever to go to war with Iran, gas prices would rise to $200 a barrel, Briggs said.

He criticized President Barack Obama’s efforts to end oil and gas industry subsidies and offer cleaner energy tax credits, and he said one of his biggest worries is the U.S. Environmental Protection Agency “getting control of hydraulic fracturing.”

Hydraulic fracturing involves injecting water and chemicals into underground shale formations to release trapped gas. The EPA has linked the practice to groundwater contamination.

‘Big game changer’

The oil and gas industry is being “revolutionized,” Briggs said. The technology involved in hydraulic fracturing and lateral

drilling have changed the domestic oil and gas industry — increasing the drilling depth from 200 to 4,000 feet, he said.

Briggs said this technology is a “big game changer” and has made shale exploration so successful. The Haynesville Shale, in north Louisiana, is the nation’s highest-producing natural gas field, he said.

“I can’t begin to tell you the billions upon billions of dollars involved with that,” he told the audience. “The economic impact is

tremendous.” Even though prices have fallen dramatically over the last couple of years, Briggs said, North America is the investment hot spot for natural gas exploration.

He referred to Louisiana as “The Energy State,” and he said a lot of that energy stems from Lake Charles. He said it’s important that we export natural gas from Louisiana. “You have to let the free market work,” he said.

‘Legalized extortion’

Briggs said the legal environment in Louisiana troubles him. More than 200 lawsuits over the environmental effects of drilling have been filed, he said, and 1,500 are pending.

He talked about a 2003 state Supreme Court decision that awarded Shell Oil Co. to pay a landowner $33 million to cover cleanup costs.   The value of the property was estimated at $108,000, he said.

He said 56 percent of the top 50 producers face “legacy suits.” “We’re getting sued for what was legal back then,” Briggs said.

“It’s what we call legalized extortion.”

The LOGA annual meeting will be Feb. 26-28 at L’Auberge. To register, visit www.loga.la .

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“You’ve got horizontal rigs, and you’ve got access to these liquids in the crude oil shales; that’s where you’re going.  That’s where the big money is.” David Dismukes, associate executive director  of the LSU Center for Energy Studies

Last year, the state OK’d a pilot project that allowed Encana Corp. to drill the longest horizontal sections for wells the Haynesville Shale in northeast Louisiana has seen — 7,000 and 8,000 feet instead of the usual 4,600. Encana officials said the longer laterals cut production costs so much the company could make money with natural gas prices of around $3 per thousand cubic feet.

The problem — for Louisiana, Encana and every other energy company and landowner in the Haynesville — is that natural gas prices are now hovering around $2.50 per thousand cubic feet.

“That is a killer,” said Jim Welsh, commissioner of the state Office of Conservation. “When the Haynesville got cranked up in 2008, we were looking at $10 to $12 per mcf (thousand cubic feet). That’s down to $2, I mean, come on.”

Some companies say there’s no reason to spend $10 million or $11 million drilling a well in the Haynesville to produce $2.50 gas when the same investment in the Eagle Ford in Texas or Tuscaloosa Marine Shale in central Louisiana brings in oil worth $100 a barrel, Welsh said.

It costs around $4.50 to $5 to produce a thousand cubic feet of gas in the Haynesville, Louisiana Oil and Gas Association Vice President Gifford Briggs said.

The difference between production costs and prices of natural gas versus oil helps explain why the number of rigs working in the Haynesville is falling.

At the peak in October 2010, there were 148 rigs working in the shale, LOGA records show. Now there are 114.

“You’ve got horizontal rigs, and you’ve got access to these liquids in the crude oil shales; that’s where you’re going,” said David Dismukes, associate executive director of the LSU Center for Energy Studies. “That’s where the big money is.”

Encana spokesman Alan Boras said natural gas prices are the reason that energy companies, Encana included, are spending less on dry gas plays and investing more in “liquids-rich opportunities.”

One of those opportunities is the Tuscalooosa Marine Shale, an oil-bearing formation stretching across the middle of Louisiana. Encana has leased around 270,000 acres in the Tuscaloosa. The Canadian company has 350,000 acres in the Haynesville, and 150,000 to 200,000 acres in the Mid-Bossier, a natural gas formation that lies about 2,000 feet above the Haynesville.

Still, depressed natural gas prices don’t mean Encana will abandon the Haynesville or other shale gas formations.

During the BMO Capital Markets investor conferences in January, Encana Executive Vice President Eric Marsh said the long-term outlook for natural gas remains strong.

“It’s the short term, the next two to three years, that will be the challenge,” Marsh told attendees of the conference.

One reason for the company’s optimism is that the utility industry expects to shut down an estimated 30 gigawatts of coal-fired power generation plants over the next three to four years, Marsh said.

“We think that number is probably at the low end. We think that number could be as high as 60 gigawatts,” Marsh told investors.

Sixty gigawatts is enough electricity to power around 35 million homes.

Dismukes said even 60 gigawatts might be too conservative an estimate.

Utilities could mothball as much as 75 gigawatts of coal-fired generation in the next three to four years, Dismukes said. The amount depends on how rapidly federal regulations, such as cross-state pollution and mercury emissions, are put into place.

Meanwhile, electricity demand is rising in most of the country’s power markets, Dismukes said. The mid-Atlantic and Northeast states are desperate for additional power plants, which will burn gas to generate electricity.

The additional plants and higher electricity usage are expected to increase the demand for natural gas by 2 trillion to 3 trillion cubic feet a year, Dismukes said. The United States is now burning around 22 trillion cubic feet a year.

Marsh told investors that when prices recover, Encana will be ready.

The company’s strategy in the Haynesville calls for longer laterals, some as long as 10,000 feet, and an approach that will allow the company to exploit 4 to 6 square miles of reservoir from a single location, he said.

Encana’s Louisiana Haynesville wells are drilled vertically for 11,000 to 14,000 feet, then horizontally for 4,600 feet or so.

State regulations limit the length of the lateral, or horizontal section, Welsh said. Wells must be drilled inside “units” one-mile, or 640 acres, square. The regulations say the well must end 300 feet away from the unit’s boundaries.

“So if you have two units next to each other, and you own both of them … that’s 600 feet that you cannot produce,” Briggs said.

Putting multiple units together means that Encana doesn’t have to start drilling, stop, pick up and move the entire rig and start over, Briggs said. The cross-unit wells generate tremendous savings as a result.

Marsh said the state’s pilot program allowed the company to drill horizontal sections 7,000 to 8,000 feet long.

Encana believes the longer laterals will allow the company to lower production costs to around $2.75 per thousand cubic feet.

The longer lateral wells also boost production, Marsh said. Encana has a couple of cross-unit wells on the Texas side of the Haynesville producing 35 million cubic feet of gas a day, making them some of the strongest wells in North America.

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The recent finds of huge natural gas fields like the Haynesville Shale in north Louisiana and the resulting dip in natural gas prices have not only been a godsend to state residents, but to a new wave of industrial expansion in Southwest Louisiana and around the state.

Last month, natural gas prices dipped to a 10-year low — around $2.30 per million British thermal unit — or about $2 less than where they were in 2010.

That lower price has not only resulted in noticeable lower electrical bills for residential customers, but substantially lower electrical bills for the petrochemical industry in Louisiana.

Department of Economic Development Secretary Stephen Moret said the lower natural gas prices raise optimism regarding industry expansion and job growth.

‘‘I’m really confident that Louisiana will benefit more from low, stable natural gas prices than any other part of the country because of the high concentration of the chemical industry, because of the infrastructure and because of the high level of natural gas in our electricity production base and reduction in our industrial electricity rates,’’ told this newspaper’s editorial board recently.

He said forecasts of stable gas prices will lead to millions of dollars of new investment in our area, along the Mississippi River corridor south of Baton Rouge and in southeast Louisiana.

Moret predicts that construction activity will increase in Southwest Louisiana from the second half of this year through 2014 and likely remain steady for five to seven years.

He said as opposed to the United States, most other parts of the world’s energy consumption is based on oil, not natural gas.

While natural gas prices have fallen nearly 100 percent in the last two years, the price of crude oil has risen 10 percent.

‘‘The economic advantages for industry in the U.S. and the chemical industry in particular has changed dramatically,’’ said Moret.

Last month, a Canadian company announced that it had purchased land in Geismar and was considering moving an idle methanol plant there from Chile.

And it’s possible in the not-to-distant future, the Cheniere and Sempra LNG plants in Cameron Parish and the Trunkline LNG facility south of Lake Charles could all be exporting liquefied natural gas.

‘‘Obviously, global conditions could change,’’ said Moret, ‘‘but this advantage that we have with low, stable natural gas is a very big deal and it’s not really counting on economic recovery. Even a flat national economy could still result in significant out-performance of this region and the state because of the economics of natural gas.’’

That’s promising news for our corner of the state.

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New technology is a game changer for Louisiana’s energy future, but foreign rivalries and domestic legal issues are still stacking against the energy industry, according to Louisiana Oil and Gas Association President Don Briggs.

Addressing the association’s local members Tuesday, Briggs spoke of the challenges facing the industry.

“We are today truly in a new era for our industry,” Briggs said. “Technology is changing everything, and we’re going to be part of it in a big way, especially in northwest Louisiana.”

Those technologies have allowed drilling firms to reach unprecedented levels of production, which has driven a boom in investments across Louisiana, Briggs said. The Louisiana chemical industry has been a major benefactor, he said.

But even with natural gas prices falling rapidly, Briggs said concerns about the future of drilling on the Haynesville Shale will eventually fade. Only 42 percent of rigs in the United States are drilling primarily for natural gas, Briggs said, down from 82 percent in 2008.

“Natural gas prices are going in the tank. We had a good run, but that’s the nature of the beast,” Briggs said. “Even though the rigs are moving out, and they need to be, eventually that glut will be swallowed.”

But the challenge of natural gas prices is based on successful production and partly a mild winter. Briggs said the largest problems facing the industry are both foreign and domestic.

Increasing tension between the United States, Israel and Iran have raised the specter of skyrocketing oil prices, already trading around $100 per barrel. Briggs said military or political action could limit oil flow through the Strait of Hormuz, through which 35 percent of the world’s sea-born oil flows and which Iran has threatened to shut down.

“If that happens, we’ll see the price of oil go absolutely through the roof,” Briggs said.

But U.S. Environmental Protection Agency push-back against hydraulic fracturing — the process of breaking apart shale sediment with water, sand and chemicals to release natural gas — was the area Briggs said concerned him most.

The EPA has raised concern that fracking could contaminate groundwater and harm people and the environment. Briggs said those concerns are “scare tactics,” that 85 percent of wells today are fracked and there has never been proof it is harmful.

“I’m not sure we’re winning that battle,” Briggs said. “This administration doesn’t like the domestic oil and gas industry.”

Briggs also raised concerns about the effects of “legacy lawsuits” — claims against firms for environmental damage caused in years past — on the oil and gas industry.

“It’s a huge problem, and our industry has been on the back side of it,” Briggs said.

Briggs said 56 percent of the top 50 oil and gas producers have legacy suits filed against them. Good companies, he said, are being sued for environmental damage as much as 70 years old caused sometimes by drilling techniques legal at the time.

A founder of LOGA, Briggs also serves on governor-appointed committees such as the Ground Water Management Advisory Task Force, Governor’s Environmental Task Force and the Oilfield Site Restoration Committee.

“Don is always the guy leading the charge against bad legislation and challenges to our industry,” LOGA’s Chairman of the Board Raymond Lasseigne said.

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