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HOUMA — Tax assessors in oil-and-gas producing parishes are suing the state board that determines how wells are valued, claiming a change to the rules gives the industry a $23 million annual tax break.

But representatives of the oil-and-gas industry say the change is warranted so wells are assessed properly based on their age.

Last fall, the Louisiana Tax Commission changed its calculation for values of oil-and-gas wells and production equipment, reducing the average life span of wells from 25 to 17 years starting this year. Reducing the average age allows wells to depreciate faster for tax purposes. The wells lose value more quickly, and their owners pay less in property taxes.

Terrebonne Assessor Gene Bonvillain called the change a typical giveaway to the industry by the Tax Commission.

“They chose to go along with the oil-and-gas industry as usual,” Bonvillain said.

On behalf of several parishes, members of the Louisiana Tax Assessors Association filed suit in May in East Baton Rouge Parish’s district court. The suit claims the Tax Commission did not follow proper procedures in reporting the change to the Legislative Fiscal Office and did not provide an estimated impact the change would have.

Charles Abels, Tax Commission administrator, said his agency followed all requirements but he does not know exactly why the commission adjusted the average well life. A records request sent Tuesday to the commission for the financial-impact report was not answered by Wednesday night. Abels said he couldn’t estimate the impact to individual parishes and hasn’t seen information showing a decrease or increase in Terrebonne’s tax base.

The adjustment is needed because the life-span of oil wells is longer in northern parishes and shorter in the southern ones based on geological conditions, said Don Briggs, Louisiana Oil and Gas Association president.

“There are so many wells in north Louisiana that linger on for years that make a quarter of a barrel or less, and that brings the overall average up to 17 years,” Briggs said. “The oil-and-gas wells in south Louisiana are closer to five years.”

The oil-and-gas association petitioned the commission to reduce the average age of wells throughout the state, and pointed to the ages used in a national publication that serves as a guide for assessors.

“Every year we go to battle with tax assessors,” Briggs said, referring to the Tax Commission’s annual fall hearings on assessment procedures. “They are tax takers and we are taxpayers. Tax takers want all they can get from taxpayers. Taxpayers want to protect as much as they can. … We don’t mind paying taxes we owe.”

The assessors and their attorneys say the 17-year rule will cause unnecessary tax-revenue losses for parishes. The oil-and-gas industry gets enough tax breaks and incentives as it is, they argue.

Terrebonne Parish collected about $9.5 million in taxes from oil-and-gas wells and production equipment in 2009. Bonvillain estimates the change will reduce collections from oil-and-gas properties by about $3 million this year.

Total tax collections from all types of property in Terrebonne was $69.3 million last year.

In Lafourche, the commission’s change could reduce tax collections from wells and production equipment by $600,000, Assessor Michael Martin estimates. The parish collected $6.8 million in taxes last year from oil-and-gas wells and production equipment. From all properties, the parish collected about $80 million in taxes in 2009.

Lafourche is not as affected as Terrebonne because it gets a third of its property taxes from commercial boats and barges, many of which transport people and equipment to offshore platforms and rigs.

Increases in property values from other areas, such as new retail shops, homes, restaurants and businesses, could offset the losses in Terrebonne and Lafourche, both assessors said.

“It looks like Lafourche is going to fare pretty well this year. I see it more of an effect in 2011,” Martin said. Boat operations could slough off and affect next year’s tax collections if the federal government’s ban on deepwater drilling continues, he said. The ban was enacted following the Deepwater Horizon explosion and was designed to allow a federal panel time to evaluate safety measures and make recommendations on how to improve rigs.The depreciation dispute is the latest in an ongoing feud between Bonvillain and the oil-and-gas industry. Last year, Bonvillain filed a lawsuit in federal court, claiming that 13 oil companies purposely misrepresented some well values, falsely reported the production status of others and failed to report equipment and property, cheating the parish out of millions in tax revenue. The suit is still pending, Bonvillain said, after he and his attorneys presented more information requested by the judge.

Original Article

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Since enacting a ban on deepwater drilling in the Gulf of Mexico in late May, regulators have insisted that companies working in shallower waters could carry on with business as usual once they pass their plans through tightened safety restrictions.

But a grinding slowdown in the permitting process and confusion surrounding new safety regulations are making the moratorium a reality even for the shallow water operators that don’t fall under it.

Michael Willis, chief operating officer at Metairie-based Century New Orleans, said that when his company applied for permits to plug inactive wells on the Outer Continental Shelf earlier this summer, the routine request turned into a tug of war with the Bureau of Ocean Energy Management, Regulation and Enforcement, which rejected its applications three times.

The bureau said new regulations required Century to install blowout preventers on the dormant wells before filling them in with cement, a task that would have been redundant on a nonproducing well, he said.

“They’re not active,” Willis said. “It didn’t make any sense to us.”

Eight weeks later, BOEM rescinded the requirement and approved Century’s applications, but not before confusion had set in and held up operations, he said.

“The impression we got was that there was an attempt to prevent any permits from being issued,” Willis said. “It’s been very frustrating because we can’t go about getting our business done.”

That impression is quickly spreading throughout much of the shallow water drilling industry even though Interior Secretary Ken Salazar and BOEM Director Michael Bromwich have insisted that drilling in depths up to 500 feet is allowed under the moratorium.

“We’re not slow-walking these applications,” Bromwich said in response to questions about slow permitting at an Aug. 4 forum in New Orleans on deepwater drilling.

Between May and July, four permits for new shallow water wells were approved compared with 10 during the same time span last year, according to BOEM records. The Louisiana oil and gas industry says the slowdown is especially acute in a shallow water sector dominated by smaller independent exploration companies, which have already started to lay off workers and cancel rigs.

BOEM spokeswoman Caryl Fagot said shallow water permits are coming through the system and are being approved. A bureau official with direct knowledge of the permitting process did not respond to requests for comment in time for publication.

“They’re trying to figure out how to get on the dance floor without stepping on anybody’s feet here,” said Louisiana Lt. Gov. Scott Angelle, who has been involved in shallow water talks in Washington, D.C., with Salazar and Interior representatives since mid-June.

At the heart of the slowdown is a cycle in which regulators are unable to map out new regulations for companies that need to know what’s required of them to stay in business, Angelle said.

In several meetings with BOEM officials and industry leaders, Angelle said questions about safety requirements and technical changes went unanswered.

“When tough questions were being asked, they said they weren’t really sure and had to get back to you,” Angelle said.

Angelle says regulators need to understand what they’re asking of shallow water drillers for permitting to pick back up.

“Right now you’re asking for something but you’re not sure what it is that you want. On Monday the answer can’t be different than it is on Tuesday.”

In early June, BOEM started requiring all operators in the Gulf of Mexico to certify that they comply with safety regulations. The bureau wanted proof that well control equipment had been recently examined and that operators are capable of shutting down a well in an emergency.

Don Briggs, president of the Louisiana Oil and Gas Association, said the industry is already meeting those requirements, but the changes are lost in translation when companies detail their improvements in permit applications.

Briggs said the onus is on BOEM to detail the new safety standards and how they should be explained on an application.

On its website, BOEM directs questions about new safety requirements to a question sheet updated on July 21 and says that July meetings with Angelle and industry representatives also helped clarify the guidelines.

“All we need is someone to tell us what to do,” Briggs said. “They’re the ones asking for the new information. We need to know what that new information is to give it to them.”

Willis with Century New Orleans is confident that information will come within the next few weeks. Meanwhile, the company will focus on diversifying it portfolio, with 75 percent currently tied to shallow water drilling, to include more onshore assets.

Willis says the threat of hurricanes and the slow permitting process led to the new strategy.

Business decisions offshore require clarity, exactly what he says is lacking right now.

“There’s a lot of confusion out there.”

Original Article

Matthew R. Simmons, an energy investment banker and a leading proponent of the “peak oil” theory that claims the Earth is running out of crude, died yesterday.

Simmons, 67, died in an accidental drowning at his home in Maine, local officials said.

Simmons started Houston-based Simmons & Co. in May 1974 with a focus on the oil-services industry, according to the company’s website. The firm expanded to offer research, institutional sales and investment banking in the energy industry. Simmons promoted the idea that world oil reserves are peaking, and he explored the implications in a 2005 book called “Twilight in the Desert.”

“In the history of the petroleum era, Matt Simmons will be remembered for calling attention to ‘peak oil,’” T. Boone Pickens, chairman of BP Capital LLC, said in an e-mailed statement. “You had to admire his advocacy and his ability to focus on the need to better prepare for a new energy future.”

Emergency medical workers responded to Simmons’s home a little before 10 p.m. local time yesterday, said John Dietter, a crew chief in North Haven, Maine. The official cause of death is drowning, and he was found in a hot tub, said Tara Harrington, medical associate at Maine’s Office of Chief Medical Examiner.

“It was an accident,” Harrington said today in a telephone interview. She said “heart disease” was listed for the category of “other significant conditions” on the death certificate.

‘Very Good Analyst’

“He was somebody that was very comfortable challenging conventional wisdom, someone that thought beyond the near term and was a very good analyst in terms of identifying big trends,” said Dan Pickering, who worked at Simmons & Co. from 1996 to 2004 and is now co-president of the Tudor Pickering Holt & Co. investment bank in Houston.

On a tour of Saudi Arabia’s oil industry in 2003, Simmons was inspired to estimate the world’s largest oil reserves, and from research that included poring through neglected engineering data, determined that the country was close to or nearing peak output, Peter Maass wrote in his book, “Crude World: The Violent Twilight of Oil.”

“He built his own energy firm and, having done that successfully, used his knowledge of the industry to challenge one of its biggest accepted truths — that there are nearly unlimited quantities of oil in the world,” Maass said today in an e-mail.

Demand Concerns

Demand for energy has become a “runwaway train that cannot be easily slowed or reversed,” Simmons said in a slide presentation in May at the Offshore Technology Conference in Houston.

“We are in early stages of a global train wreck when demand outstrips supply and shortages begin,” according to the slides on the website for the Ocean Energy Institute, which Simmons founded in 2007 to explore opportunities for harvesting energy from the seas. He is survived by his wife Ellen and their five daughters.

In May 2008, Goldman Sachs Group Inc. analysts said crude might rise to between $150 and $200 a barrel on increased demand from developing countries that supply could fail to match. Simmons said July 16 of that year that oil was more likely to hit $200 per barrel than drop to $50 over the next six months.

Record Oil Price

Oil did touch a record, hitting $147.27 a barrel in July 2008 in New York futures trading. Crude fell to $44.60 at the close of 2008 and hasn’t returned to triple digits following a global recession that cut demand.

Rising prices raised awareness of peak oil, said Ted Harper, who helps manage about $6.8 billion in assets at Frost Investment Advisors in Houston. Harper said he thinks the industry is at or near peak output capacity, though he didn’t fully endorse peak oil, which has seen its prominence fade.

Interest in whether global oil production has plateaued or peaked has waned as prices have remained well below their 2008 high, Harper said.

Arthur Berman, a geologist who lives near Houston and writes for the Oil Drum energy website, said he shared Simmons’s views on peak oil. Simmons did have “some peculiar ideas” on the BP Plc spill such as the size of the disaster, Berman said, and he’d hoped to talk with Simmons about the reasons for some of his thoughts.

Simmons was a frequent critic of BP’s efforts to stanch its oil spill in the Gulf of Mexico, suggesting at one point that the best option would be to detonate a small nuclear bomb undersea to kill the well.

On June 16, Simmons announced his retirement as chairman emeritus from Simmons & Co. so he could focus on the Ocean Energy Institute.

Original Article

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GALVESTON, Texas — The effect of the government’s moratorium on deep-water oil and gas drilling is evident here at an almost deserted boat dock.

Normally, two or three boats that service offshore oil rigs would be here, getting equipment or repairs. On a recent Saturday, there was one. Craig Marston, general manager of the 80-employee Malin International Ship Repair, didn’t have any oil-related clients scheduled to come in. Instead, he’s bracing for a 30% to 40% drop in business in the next few weeks as the full impact of the moratorium, in its third month, sets in.

“A quarter of my workforce is at risk (of layoffs) right now,” Marston says.

The BP oil spill, which is having a diminishing effect on the Gulf of Mexico’s water, continues to wreak havoc on the offshore oil and gas industry and the businesses that service and supply it. Of the 33 deep-water rigs in the Gulf, 24 have been idled by President Obama’s moratorium, which was imposed to beef up safety. Several rigs have left for work in other parts of the world.

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Government permits for shallow-water drilling have slowed, too.

Less drilling means less business for hundreds of companies from Texas to Alabama, including shipbuilders, repair shops and those that supply boats to service the rigs.

The moratorium’s full impact has yet to be felt. Some companies picked up business because many boats were enlisted to work on the spill. Malin was one of them, getting a 20% bump in business, Marston says. But that work is lessening now that the well has been capped.

Boat company Laborde Marine of Morgan City, La., has eight of its 21 boats enlisted in spill response, says Jimmy Skiles, Laborde executive vice president. “It’s been pretty good for us,” he says. The unknown is how long the moratorium will go and how intense new safety requirements will be for offshore drilling, which may slow projects, Skiles says. “Everybody feels like the hammer is going to fall. We just don’t know when.”

Safety systems

The government’s first moratorium, issued in May, was struck down in June by U.S. District Judge Martin Feldman. He said it failed to take into account safety records of others in the Gulf besides BP. The Obama administration, saying the industry needed more safeguards to contain spills, countered with a narrower moratorium that still has halted drilling on new deep-water wells.

Several companies have sued to have that lifted, too. Federal regulators have said that the latest moratorium, planned to extend until Nov. 30, may be lifted early if companies can show they have more safety systems in place.

Industry executives are cautious. “It’s one thing for them to say, ‘We’ll lift the moratorium.’ It’s another thing to say, ‘We want drilling to resume,’ ” says Samuel Giberga, general counsel for Hornbeck Offshore Services, which filed one of the first lawsuits against the moratorium.

Dun & Bradstreet estimates that 16,580 businesses in the five Gulf states could be affected by the moratorium. A vast majority of those would be small businesses, the research firm says.

One of those is NREC Power Systems in Houma, La. In June, the engine-repair company laid off 10 of 80 workers to counter lost business as boat owners, expecting to lose work because of the moratorium, delayed service, says Bryan Chaisson. “The oil field is our bread and butter,” Chaisson says. “The spill hurt business from Day 1. The moratorium has made it worse.”

Other companies have curtailed expansion plans. John Dane, CEO of Trinity Yachts in New Orleans and Trinity Offshore, which makes supply vessels, won’t add 200 workers to its 1,000-member workforce as planned. Since the moratorium, Trinity has lost three orders to build supply boats, each worth about $45 million.

The company that curtailed the orders is Harvey Gulf International Marine in New Orleans. Its 350 Louisiana employees recently took a 10% pay cut to avoid layoffs. The company is looking elsewhere for work. For now, three of its 17 vessels are slated for work in Mexico and Nigeria. Normally, they’d be in the Gulf, says CEO Shane Guidry.

Deep-water rigs employ hundreds and lease out for $250,000 to $500,000 a day. Some companies have opted to move their rigs. Last month, Diamond Offshore Drilling started to move two rigs to Egypt and the Republic of Congo. “We must consider alternatives that allow our deep-water assets to remain employed,” CEO Larry Dickerson said.

Transocean, the world’s largest offshore drilling contractor, has 14 rigs in the Gulf. Several customers are trying to terminate contracts, and others have gotten lower standby rates. The potential loss to Transocean is $2.1 billion, it said last week .

The bet by industry appears to be that the moratorium will be lifted in November and maybe a little sooner, says Philip Weiss, industry analyst at Argus Research. If not, he says, “We would’ve seen more rigs exit the Gulf.”

While bigger players such as Harvey Marine can move assets to follow rigs, other companies can’t.

Harbor Offshore Marine in Galveston, Texas, operates a fleet of five smaller boats that service rigs that operate in shallow waters. Government permits for those wells have also slowed.

Hazy future

In July, Harbor bid on one offshore service job. Normally, it would bid on a dozen, says Magen Ortiz, vice president of the 20-employee, family-owned firm. “I don’t know what the future holds,” Ortiz says.

Companies like Harbor buy supplies from Galveston’s Industrial Material. It supplies goods from gloves to pipe fittings and hard hats to industrial customers, including those in the oil and gas industry. Since early June, revenue from energy-sector clients is off 17%, says Jayson Levy, president of the 44-employee company.

To compensate, Levy has cut employees’ work hours. The 52-year-old company survived Hurricane Ike, which devastated parts of Galveston two years ago. Levy is confident it’ll survive the moratorium. But the company won’t be in the same position to grow as it was, he says.

Since May, only a few permits were issued for new shallow-water wells, says James Noe, senior vice president of Hercules Offshore, the region’s largest shallow-water driller. Typically, there’d be 10 to 15 a week, Noe says.

As of the end of July, 26 of the Gulf’s 49 shallow-water rigs were idle, Noe says.

Hercules, which employs 2,200, has several hundred employees who don’t have work to do. The company doesn’t want to lay them off — which could make them eligible for payments from a $100 million fund BP set up for affected rig workers — because it doesn’t want to lose its experienced workforce, Noe says.

“The moratorium was aimed at Big Oil … but all of these measures are hurting mostly small companies,” Noe says.

Original Article