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The Gulf of Mexico is the oil and gas hub for the Western Hemisphere, with several thousand platforms standing at any given time. As with any industry, safety is of utmost concern. When a platform is built in the Gulf, there are safety concerns for human life, aquatic life, the environment and the Gulf of Mexico itself, to name but a few. However, certain legislation is being proposed in the U.S. Congress that would be detrimental to the oil and gas industry and have a stifling financial impact on Gulf of Mexico drilling activity — Section 608 of the U.S. Coast Guard Reauthorization Bill, also known as H.R. 2838.

U.S. Rep. Jeff Landry, R-New Iberia, recently amended the bill in the House before passing it on to the Senate. Landry’s House amendment includes Section 608, which is language regarding the use of stand-by vessels. The language requires stand-by vessels to be located within three miles of every manned oil and gas platform facility in the Gulf of Mexico, including mobile offshore drilling units. This requirement would increase cost to oil and gas operations in the Gulf of Mexico by hundreds of millions of dollars.

The alleged intention of Landry’s amendment of this bill is to improve the safety of offshore workers by adding these so-called stand-by vessels. However, the oil and gas industry does not agree with this notion. A recent report by the Bureau of Safety and Environmental Enforcement (BSEE) stated that from the period of 1996 to 2009, there were only three fatalities that were related to hypothermia in the Gulf of Mexico. During this same timeframe, the industry voluntarily reported 1.04 billion man-hours equating to a workforce with an annual average of more than 35,000 personnel.

The industry is projecting that an additional 150 to 200 vessels would be needed to meet the stand-by language requirements. Also, additional personnel would be required to operate the additional vessels. All in the name of safety, adding these stand-by vessels and personnel would not increase safety, but exponentially increase cost to the oil and gas industry by several hundred million dollars.

Regulations already exist using the most efficient technology that is designed specifically to protect offshore workers, and the regulations have been deemed adequate by the regulating bodies. Reports like the BSEE document and historical incident data do not show a need for such an onerous requirement like the Stand-By language pursues.

The Senate has now voted on the bill, passing it out without language regarding stand-by vessels. However, this issue is far from dead. The bill can potentially go before a conference committee where the final language would be decided, but this will most likely not happen until after the November elections. If this stand-by language were to be added in the conference committee and passed within the reauthorization bill, the outcome would be stifling for the oil and gas industry and its future production and success.

As the country is already trying to recover from the worst recession since the Great Depression, it is vitally important that the U.S. Congress not create barriers that prevent energy and economic development within the Gulf of Mexico region.

Don Briggs is president of the Louisiana Oil and Gas Association. His column is published every other Thursday.

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The American Petroleum Institute claims the industry is being hit by “a tsunami of regulations” that threaten to add costs, suppress job growth and curb domestic energy production.

API officials accuse the Obama administration of imposing unneeded regulations and ignoring industry input on the rules, reports FuelFix, an energy news and analysis site anchored by business reporters at the Houston Chronicle and other Hearst newspapers.

“We’ve seen numerous examples of regulatory decisions that move in the wrong direction,” said Erik Milito, API’s upstream group director. In particular, Milito singled out the Interior Department’s five-year plan for offshore energy development, which includes a dozen sales of Gulf of Mexico leases, and three auctions of drilling rights in waters around Alaska. …

In a global marketplace, “now is not the time to impose still more requirements unless the need is indisputable,” Feldman said. “When jobs are paramount, additional regulations are not helping.”

The API also took aim at a proposed rule unveiled in May that would govern the design of wells on federal lands that are hydraulically fractured. The measure also would force companies to reveal the chemicals they use when drilling for oil and natural gas on public lands.

Meanwhile, closer to home, Louisiana Oil and Gas Association President Don Briggs, an ABiz contributor, echoed some of those sentiments and took a jab at U.S. Rep. Jeff Landry for his Stand-By-Vessels amendment.

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Oil and gas are two industries people both resist and rely upon every day.

When oil producers are pleased with high prices per barrel, consumers are upset by what is being paid at the pump. The opposite occurs when crude costs are down.

Natural gas has proven to be a clean burning alternative to coal for electric generation plants and chemical manufacturing companies. When the natural gas price is low consumers love it, but producers cannot afford to extract it.

Many oil and gas opponents contend they would prefer no use of fossil fuels, while at the same time relying on products made at least in part from a petroleum base.

Some alternative power proponents prefer promotions offered by the solar and wind businesses alone, and discredit oil and gas initiatives to add resources to their consumer offerings.

Oil and gas companies generate profits even in hard economic times, but consumers, often while complaining, continue to use what is produced and demand more.

Louisiana Oil and Gas Association President Don Briggs said the petroleum and natural gas industries are cleaner and safer today than they have ever been.

He also admitted oil and gas is an easy target.

“I would love to think [industry and the environment] can co-exist,” he said. “The people we have to convince are not the environmentalists, but the general public. That’s a major task.”

Briggs said numbers, calculations and claims posted on the Internet and reported by news agencies often add confusion as various backers of traditional and alternative energy strive to promote their own interests over the competition.

“We have to be educating people so they can make a decision based on science rather than the more radical claims that have proven to be lies,” he said.

Financial analyst John Thomas wrote on the Online Traders Forum that while he gets frustrated with profits made by major oil and gas producers, and realizes the petroleum industry has the strongest lobbyists in Washington, it is still a steady, reliable and proven energy source – which makes him love the business again.

“It’s the industry everyone loves to hate,” Thomas said. “Cut off the gasoline supply to an environmentalist, and he will be the one who screams the loudest.”

“Like any relationship, [oil and gas] has its past and it definitely has its future,” Restore of Retreat Executive Director Simone Theriot Maloz said. “A lot of times oil and gas companies get a bad rap for things that happened in the past. The oil and gas companies I know are great stewards of their land [and] give back to the community, but they have pushed the envelope a lot of times when they don’t have to.”

Maloz said that either for or against oil and gas there are hardliners who will always be set in their ways.

Louisiana Bucket Brigade Program Manager Anna Hrybyk admits to holding a firm opinion.

“I’m happy that regulatory agencies have consolidated and I see that there are more stringent regulations that can only help,” Hrybyk said. “I think the state has a lot to do with the issue. They are the ones permitting [abandoned wells] in the Gulf.”

As for if she sees oil and gas companies and environmentalists working together, Hrybyk said, “no.”

“I think it is unrealistic for us to consider not having some degree of oil and gas in our future,” Sierra Club New Orleans Chapter Senior Field Manager Jill Mastrotaro said. “The fact that we get a significant part of our electricity from natural gas reflects a need to be more creative in how we develop renewable energy sources.”

Mastrotaro said Louisiana is a primary candidate for the development of both solar and wind generated energy. She recommended retro-fitting power plants using natural gas. “So, when we don’t want to use natural gas and the sun is shining, we can put it on solar. Or when the wind is blowing we can put it on wind. We need to look at all areas of the spectrum.”

Briggs argued that wind and solar energy cannot produce the same level of energy as oil and gas, thus are insufficient when it comes to cost.

“There is a movement on the international level to create hybrid power plants,” Mastrotaro said as an example where oil and gas could live together with wind and solar power. “The technology is there. We just need retro-fitting and reducing energy demand from the industry level all the way down to the consumer.”

Maloz said it would not surprise her if oil and gas businesses were the first to make alternative energy work. “The oil and gas industry has always been known as innovators,” she said. “They are some of the first to come out with technology. We need to lean on those resources to help us develop new technologies.”

All sides represented did agree on one thing – that one-size will not fit all situations and there will probably never be complete harmony between oil and gas and loyalists to renewable energies alone.

Either way, for now at least Louisiana’s $70 billion oil and gas industry remains the energy king. Creating 320,000 direct and indirect jobs, oil and gas, it can be said, is loved by a lot of people.

“If you are stuck in the past you never realize the present,” Maloz said. “As long as there is a willingness to move forward [oil and gas and alternative fuels] can live together.”

“True environmentalists hate [oil and gas],” Briggs said. “I do not think we will ever convince the environmentalists that we should have anything other than wind.”

Each side of the energy argument contends if the other would take their research seriously the opposing side would come around. Until then, they speculate their common resistance and mutual dependence will continue.

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“A lot will depend on what happens in November,” Louisiana Oil and Gas Association President Don Briggs said regarding the petroleum industry’s condition and near future, as possibly influenced by the upcoming presidential election.

With fewer than 2,000 working rigs in the Gulf of Mexico, a stall in drilling permits and lease sales, and a president touting the benefits of alternative energy resources, Briggs is among the oil and gas professionals that are tentative in describing current conditions, but said future expectations would be influenced as much by need as independence.

Total U.S. petroleum deliveries – the measure that indicates consumer demand – fell 2.7 percent in July, to a little more than 18 million barrels a day, according to the American Petroleum Institute. It was the lowest level since 1995 and the lowest of any month since September 2008.

“While retail sales for July [were] up and housing has improved, the weak petroleum demand numbers are a strong indication the economy is still faltering,” API Chief Economist John Felmy said. “Unfortunately, achieving robust growth will likely continue to be an uphill climb given the nation’s fiscal challenges, business uncertainty and a European economy in jeopardy of sliding back into recession.”

The API economist said even with a decline in consumer use, refinery activity was strong throughout the summer. Production levels were at approximately 4.8 million barrels per day during July, which was the third highest level year-to-date. During the same month, total refinery input grew to its highest level thus far in 2012, at a rate of 2.3 percent.

Crude oil stocks were up more than 5 percent during July from the same month in 2011, but down 4.3 percent from June of this year. By the first of September, crude oil prices had rebounded nearly 3.5 percent and opened at $96.47 a barrel the morning following Labor Day.

An energy outlook release provided by ExxonMobil offers greater optimism. “In the decades ahead, the world will need to expand energy supplies in a way that is safe, secure, affordable and environmentally responsible,” ExxonMobil CEO Rex Tillerson said in a printed statement. “The scale of the challenge is enormous and requires an integrated set of solutions and pursuit of all economic options.”

ExxonMobil analysts predict that by the year 2040, global energy demands will be 30 percent higher than they were in 2010, based on the expectation of economic output having more than doubled during those three decades.

“The reality is we are an energy consuming country that has got to have oil and natural gas to survive,” Briggs said. “The one thing we can always count on in Louisiana, especially where we are positioned, is that we will be a major source and distributor of oil and natural gas products.”

Louisiana Mid-Continent Oil and Gas Association President Chris John shared a positive opinion regarding oil and gas industry improvements since the April 2010 BP Deepwater Horizon disaster, and what lies ahead for the Gulf of Mexico.

“I think the future of our oil and gas industry domestically and from a Louisiana standpoint is very bright,” John said. “There are a couple of indicators out there that truly underscore why people should be excited about the next five years, not only in the Gulf of Mexico, but onshore.”

John noted two bills that passed the 2012 Louisiana Legislature as beneficial for oil and gas. “One is dealing with legacy lawsuits,” he said. “That is a huge positive for re-investment in the state of Louisiana. The second kind of flew under the radar, but is a bill we as an association sponsored as the ultra-deep utilization bill. There is a lot of interest going to unbelievable depths onshore and in shallow water with depths of 25,000 to 30,000 feet. We needed to modernize our utilization laws to make it economical for these $100 million onshore wells. I think those two pieces of legislation have come back to benefit us in the oil and gas industry.”

For LSU economist Loren Scott, shale is the current not-so-secret to success for oil and gas. “The big news on the oil side is shale play,” he said.

Scott said mining shale has pushed North Dakota into a position of being the No. 2 oil producing state behind Texas. Oil production in North Dakota since 2003 is up by a factor of 66 reaching 60,000 barrels a day and growing.

As for Louisiana, Scott said he is watching the Tuscaloosa shale deposit between Alexandria and Baton Rouge, and extending into Mississippi. “We thought there would be a lot more rigs operating there than there is, but my conversations with people in the industry indicate that they have just about worked out fracking issues for shale,” he said. “In the next couple of years you will see a spike in both Louisiana and Mississippi.”

The Gulf of Mexico is not forgotten by Scott. “I think by 2013 you will have the same number of drill ships operating in deep water as you had [before the 2010 BP oil spill],” he said.

Briggs said that having established itself as an oil and gas resource not only in production, but in processing and transporting fuel, Louisiana holds a critical economic position that offers a more positive economic outlook than other parts of the nation.

“One of the big issues we are going to face as a country, that is going to have an impact on our industry in Louisiana, is the fact that we are going to be competing with China for energy supplies,” Briggs said. “Today, China is consuming almost 10 million barrels a day, but just a few years ago they were consuming only 2 million.”

The ExxonMobil report supported Brigg’s argument that now is the time to plan ahead regarding future market demands. “Decisions made decades ago to invest in technology, exploration and development [are] critical to meeting today’s energy demand,” the report said. It also noted that 75 percent of the oil being used in 2012 was actually discovered before 1980.

“I think as the economy starts to pick up little bit that brings along a positive in the oil and gas industry because of demand,” John added. “I think a second thing is to look at is the major oil and gas companies that are reaching out in deeper depths in the Gulf of Mexico. That is positive.”

During a recent personal conversation with Rep. Jeff Landry, President Barack Obama, while addressing the impact of Hurricane Isaac on Louisiana, mentioned a need to identify areas of the country that represent economic importance related to the United States as a whole.

“I jumped on that,” Landry (R-New Iberia) said. “I reiterated to him I thought that was a fantastic idea and that [Louisiana] represents an area that is vital to national interests.”

Landry told the president that the Gulf of Mexico produces a significant part of the nation’s petroleum resources. Additionally, the congressman said that 50 percent of the country’s refining capacity is situated along the Gulf Coast – 25 percent of which is in Louisiana.

“The areas we are talking about, and asking for money when it comes to hurricane protection, is one of those areas of national importance,” Landry said.

“I don’t see it as an issue of energy independence as much today as energy security,” Briggs said. “We have to be able to have the energy supply we need to run the engines of this country. We are an energy state. Our country needs the energy we produce in Louisiana for its national security.”

“A lot [of the petroleum industry outlook] hinges on November,” Landry said, echoing Briggs. “Regardless of the administration, the longer the price continues to tick upward it adds value to the economy down here. The way to stimulate the national economy as a whole would be to get those prices brought down somewhat, and have a robust drilling plan that would allow us to explore in the Gulf of Mexico while streamlining the permit process.”

Just as the most successful retail businesses depend on volume sales, these professionals agreed that increased production with reasonable prices would benefit the nation as a whole, while providing security to the oil and gas industry.

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Environmentalists say that offshore drilling has negative impacts on Louisiana’s coast – specifically within our state’s rapidly dying wetlands.

But officials within the oil and gas industry say these opinions simply don’t hold merit.

Industry leaders say that the industry does more than its fair share to help Louisiana.

Combining royalties with other mitigation programs, leaders believe they make up for the harmful things drilling does to our environment.

“We always aim to help our coastal areas however we can,” Briggs said. “We do a variety of things to make sure that everyone is fairly taken care of.”

The first – and most abundant – way that oil companies give back is through royalties.

Percentages of what is made through drilling is given back to programs that are designed to help rebuild the state’s coast.

In a multi-billion dollar industry, those totals are substantial.

“The coastal program gets a lot of revenue from the Gulf of Mexico oil and gas production and revenues,” said Don Briggs, president of the Louisiana Oil & Gas Association. “A lot of money goes into the coastal program through the industry.”

Briggs said he believes these efforts are “by-far” the most substantial remedies that the coastal areas receive from the oilfield to re-patch our area’s quickly fading wetlands.

“That’s the biggest thing,” Briggs said. “Those revenues that the coastal program receives from the offshore oil and gas production are really important and provide a substantial amount of help.”

In addition to royalties, Briggs said companies also take part in mitigation efforts to restore areas that may be affected by drilling.

The LOGA president said that if an area of land is damaged because of a spill or some other oilfield-related circumstance, companies remedy the problem by growing an equal amount of marsh elsewhere.

“If we drill a well in a coastal area and we do anything to damage any land in that area, we always turn around and we mitigate,” Briggs said. “We do that by creating new marsh or creating new environment for anything that may have been destroyed.

“There are many, many programs out there and many, many things that we work with in the Gulf of Mexico and the entire coastal area who have benefitted from the oil and gas industry’s activities.”

But even with time, effort and cold-hard cash being pumped into Louisiana’s coast, many within the public still have the negative perception that drilling does nothing but harm for the environment.

Briggs said he believes that opinion is rooted from a lack of understanding within the general public about things that are being done to help Louisiana.

“I don’t think the general public is aware of that,” Briggs said. “You and I aren’t aware of some of the different programs that might take place in the medical community in regards to new safety rules and things like that. We just don’t know about those things because they are not our business.

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The cost attached to tightened rig operation regulations cemented last month regarding Outer Continental Shelf drilling may cause small business operators and lessors to pull out of the Gulf of Mexico’s deep waters.

The Bureau of Safety and Environmental Enforcement revealed this in its 47-page analysis of its final rule in the aftermath of the 2010 Macondo prospect blowout, which claimed 11 lives and spilled 4.9 million barrels of crude into the gulf.

Small businesses, which have about a 12 percent interest in deep-water leases, will combine to pay an estimated $12.7 million per year related to the new deep-water costs, the agency estimated.

Don Briggs, president of the Louisiana Oil and Gas Association, which includes member companies involved with all aspects of offshore energy production, said he’s not sure what impact the new rule will have on small businesses.

“I don’t think the small business owner knows yet what kind of impact it’s going to have on them,” Briggs said. “I’m not sure everybody really knows what that looks like yet.

“The deep-water operators, they have a better ability to withstand the increased costs,” he continued. “The smaller operators in the shallow water, additional costs make it very difficult, but some of them will (leave) and some of them won’t and some of them will gradually get out, I’m sure.”

The rule establishes new training, casing, cementing and blowout preventer requirements. It also requires more testing, documentation and third-party verification of emergency equipment.

“This rule makes final important standards that were put in place shortly after the Deepwater Horizon oil spill and is based on input from stakeholders and recommendations from the numerous investigations related to that tragedy,” BSEE Director Jim Watson said.

Although small businesses will likely feel the impact, BSEE said the cost increases wouldn’t be debilitating to the industry. Costs associated with the final rule are about $52 million less than those associated with the interim final rule, BSEE said.

The standards will add $850,000 and $230,000 in cost to deep-water wells drilled with mobile offshore drilling units and platform rigs, respectively, BSEE estimated. Shallow-water operations’ cost will be hiked roughly $130,000 per well.

“While not an insignificant amount, we note this extra recurring cost is around 1 percent for most deep and shallow water wells,” the report reads.

In total, the industry will pay about $131 million in additional costs each year. The agency estimated that $23.9 million, or 18 percent, will fall on small companies – $12.7 million in deep water and $11.2 million in shallow water.

Small companies – classified as those with 500 or fewer employees – own a 12 percent interest in deep-water leases and 47 percent interest in shallow-water leases, the agency said.

“It would not be responsible for a regulator to compromise the safety of offshore personnel and the environment for any entity, including small businesses,” the document says.

Six months after the BP Deepwater Horizon explosion, the Bureau of Ocean Energy Management, Regulation and Enforcement issued its “interim final rule,” effective immediately and accompanied by a 60-day comment period. In August, almost a year after BOEMRE was split into two organizations, BSEE finalized the new regulations.

“It’s about what we expected,” Briggs said of the new rule. “We understand a lot of the things. Industry has been working on them, but it’s still going to be very expensive.”

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If every lawsuit filed in Louisiana were legitimate as Gordon McKernan suggests in his letter (“Frivolous suits already illegal,” Sept. 18), then presumably our state would not have a national reputation as a potential “judicial hellhole” and be ranked as the second-worst legal climate in the country.

While it is true that Louisiana law technically prohibits the filing of frivolous lawsuits, unfortunately our courts profoundly underutilize this law. Take for example the niche sector of legacy “oilfield” lawsuits, which have had a devastating impact on Louisiana’s oil and gas industry over the past decade.

In these cookie-cutter suits, plaintiffs’ attorneys and their clients seek millions of dollars for environmental damage that allegedly occurred years or decades ago. But after the Louisiana Legislature began investigating the issue last year, data compiled by the Louisiana Department of Natural Resources showed 78 percent of the cases filed presented no evidence of actual damages, according to state standards.

If that is not frivolous, I do not know what is. Yet these legacy cases remain in the system clogging up our courts. Fortunately, the Legislature took action earlier this year to help address the legacy lawsuit issue, but this is just the tip of the iceberg. Louisiana’s legal system is still a mess, for the most part, and we must continue working to clean it up.

Don Briggs, president
Louisiana Oil & Gas Association
Baton Rouge

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A survey by the Fraser Institute has ranked Louisiana as the 15th-best place in the world and 10th-best place in the United States to make oil and gas investments among 147 jurisdictions evaluated.

Experts said Louisiana can do better.

“We have to continue creating a positive atmosphere that will attract the oil and gas industry and not deter it,” Louisiana Oil and Gas Association President Don Briggs said. “This happens when individual parishes on up to the federal government realize that increasing government oversight is not the answer.”

The Fraser Institute’s sixth annual survey studied investment barriers, including higher taxes, the cost of regulatory compliance, uncertainty over environmental regulations and other existing regulations, quality of infrastructure, labor availability and skills, disputed land claims and the legal system.

Oklahoma, Mississippi and Texas were named the top three places, not only in this country, but in the world, to make oil investments. Their taxation regime, environmental regulations, clarity over protected areas, cost of regulatory compliance and legal system were more attractive than Louisiana’s, according to the survey.

“So many factors fall into play when looking at the overall picture of an industry like oil and gas,” Briggs said. “However, the litigious climate in Louisiana is stifling to the industry.”

According to a recent survey from the U.S. Chamber of Commerce, Louisiana is ranked 49 out of 50 for its legal climate. That same survey ranked Louisiana second out of 50 for tax climate for new firms — a picture different from the one painted by Fraser.

“The industry has been faced with these so called ‘legacy lawsuits’ where the idea is to litigate first, then regulate,” Briggs said. “This is a direct hindrance to those wanting to invest in the industry. Other factors such as taxes, regulations and politics also play a role in effecting the oil and gas industry.”

The survey noted that Louisiana’s labor availability and skills are the most attractive in the world. It also placed the state’s political stability and fiscal terms as encouragements to investment. Infrastructure, labor regulations and trade barriers were in the middle of the pack.

Louisiana has hovered around No. 15 in the survey over the past four years, but the state and area has continued to attract oil and gas companies. Lafayette Economic Development Authority Director Gregg Gothreaux used Halliburton’s new manufacturing facility as an example of growth.

“It was a competition to bring Halliburton here, and the competition was against other communities in Texas and in other places and that competition was won by Lafayette and the state of Louisiana,” Gothreaux said. “And a great part of it was that they knew that doing business in Lafayette, La., from the experience from other divisions, is beneficial to their bottom line.”

Briggs pointed to Haynesville Shale as an indicator of Louisiana’s prosperity. Haynesville Shale has been the No. 1 producing natural gas field in America for the last four years.

“Around 80 percent of the nation’s offshore oil and gas resources come from or through Louisiana. This is equal to nearly 30 percent of the entire energy consumption for the United States moving along the highways of Louisiana,” Briggs said.

“Looking at these statistics alone, Louisiana is the key player in oil and gas for our country.”

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