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The idea of using compressed natural gas to fuel standard vehicles has been something of a chicken-and-egg equation. Demand requires fueling stations, which are few and far between. But Don Briggs, president of the Louisiana Oil and Gas Association, said that’s changing.

There are several planned or already operating across the state, including one planned by Lafayette Consolidated Government, said Briggs in a keynote speech before a crowd of about 300 gathered at the Cajundome for the Go Tech 2011 oil and gas technical exposition Thursday.

“CNG is going to be the fuel of the future,” he predicted.

At least two local automobile dealerships, Hub City Ford and Service Chevrolet are working on converting a couple of their new models, including a truck, to use CNG, he added.

LOGA, whose membership is made up mostly of independent oil companies, has worked to promote building CNG fueling stations, he added.

Chiding President Barack Obama for touting wider use of electric vehicles as being beneficial to the environment, Briggs said the fallacy is electric cars have huge batteries that require vast amounts of electricity to recharge.

While the future might look bright for increased natural gas consumption, there is currently a surplus available in the United States, largely because the number of gas rigs rose in 2008 as the count of oil rigs dropped when oil prices fell.

Briggs said the current price of natural gas at $3.83 per million British thermal units, “is a killer for the industry,” and out of proportion to oil, which currently hovers in the $100 per barrel range. Usually the ratio is 8-1, meaning if oil sells for $8 a barrel, natural gas goes for $1 per MBTU, he explained.

Although oil prices are high, there is still a great amount of “unprecedented” uncertainty surrounding permitting in the Gulf of Mexico.

“There was billions of dollars worth of business shut down overnight,” he said in reference to BP’s deadly blowout in April 2009 that has brought deepwater drilling to a near standstill in the Gulf of Mexico.

He said that incident was not an accident, but a result of “bad engineering.” Meanwhile, Briggs expects to see an upsurge in onshore oil drilling, but companies face a tough battle fighting the Obama administration in its quest to take away the investment tax credits the petroleum industry has enjoyed.

Furthermore, he fears if caps on liability insurance required to drill in the Gulf are set too high as Washington designs new drilling regulations and policies, independent companies could be priced out of that realm.

“A lot of companies would not be able to pay to play,” he said.

On a brighter note, however, Briggs said there has been a recent flurry of new land leases let for the Tuscaloosa Marine Shale region of Louisiana, which forms a wide belt across the middle of the state.

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BATON ROUGE – A targeted review of the Louisiana program regulating the hydraulic fracturing of oil and gas wells has been completed by a multi-stakeholder group, which has concluded that the program is, over all, well-managed and also made recommendations for improvements in the program, according to news release today from the state Department of Natural Resources.

The review was conducted by a six-person team appointed by STRONGER, Inc., a non-profit organization that conducts voluntary state reviews of oil and natural gas environmental regulations. STRONGER is an acronym for State Review of Oil and Natural Gas Environmental Regulations.

The review team, appointed in October, consisted of three members and three observers representing environmental groups, state regulators and the oil and gas industry. Thirteen additional people attended the review.

“The review team has concluded that the Louisiana hydraulic fracturing program is, over all, well-managed, professional and meeting its program objectives,” said Lori Wrotenbery, director of the Oil and Gas Conservation Division of the Oklahoma Corporation Commission, who served as chairman of the review team. “We believe several aspects of the Office of Conservation and its operations merit special recognition.”

The state’s hydraulic fracturing regulatory program was singled out for its operations in the areas of prompt review of policies and adjustment of regulations in response to Haynesville Shale development, water resource use monitoring and reporting, actions to increase recycling opportunities, and public education and outreach.

The review team has also made recommendations for improvements to the conservation office’s hydraulic fracturing program concerning the review of casing and cementing standards, including surface casing requirements; immediate reporting of problems and subsequent reporting of volumes, pressures and materials used;

structured training for field inspectors; and spill prevention and control plans.

“The review team members, in addition to Wrotenbery, were Bruce Baizel, Earthworks Oil and Gas Accountability Project, and Jim Collins, a petroleum engineer representing the Independent Petroleum Association of America. Gil Bujano, of the Texas Railroad Commission, Doug Daigle, a conservation consultant from Baton Rouge, and Richard Metcalf, of Louisiana Mid-Continent Oil and Gas Association participated as observers.

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By MIKE NIXON

There was plenty of excitement in the Tri-parish region last Monday when the Bureau of Ocean Management, Regulation and Enforcement approved the first deepwater drilling permit since the BP Deepwater Horizon explosion and oil release more than 10 months ago resulted in a ban on oil exploration in the farthest reaches of the Gulf of Mexico.

Noble Energy Inc. was granted the permit to continue drilling on a well it had begun on April 16, 2010, about 70 miles southeast of Venice and approximately 20 miles from the BP disaster location. Site activity had been suspended on June 12, 2010 when the Obama Administration imposed a moratorium on offshore drilling.

Wall Street responded to the issued permit and Noble Energy stock rallied to $90.95 a share one day after they were given a green light to commence drilling. Shares of Ensco, which will do the actual drilling at the Noble site, rose to $57.11, Diamond Offshore Drilling rallied to $79.69, and Transocean Limited saw a gain to close at $85.14.

“It sure does put some faith in the people who grew up in this community,” Edward Jones financial advisor Lena Cortez said from her office in Houma.

It was also learned at that time that BP owns more than 46 percent of the well Noble was issued a permit to work, while Nobel itself carries approximately 23 percent ownership as operator of the project.

By the close of business Friday, the total number of rigs, both offshore an on land, that were actively exploring for oil and natural gas had increased by eight to 1,107 sites. One year ago at this time that number totaled 1,396.

BOEMRE Director Michael R. Bromwich said when Noble had been issued its permit that the move was made because the company had, “successfully demonstrated it can drill its deepwater well safely and that it is capable of containing a subsea blowout if it were to occur.”

Bromwich’s office said in a news release that the issuing of this deepwater permit came at the same time that 37 shallow water permits were being granted.

Interior Secretary Ken Salazar, who along with Bromwich, had become vilified by Louisiana oil producers during the past several months, told the Senate Energy and Natural Resources Committee last Wednesday that other deepwater permits are pending.

According to a report from the Louisiana Oil and Gas Association, Salazar also said that if his department does not receive federal funding it had requested, permitting might not advance as quickly as some might anticipate.

“We commend President Obama and officials at the BOEMRE for moving forward with the issuance of this permit,” LOGA President Don Briggs said. “However, much work must be done to insure that companies who have met all federal requirements receive permits.”

Political leaders were quick to issue statements of appreciation and support when the Noble permit was issued.

“I’m glad to see the administration is starting to come to its senses …,” Rep. Jeff Landry, R-New Iberia, said.

“With so much unrest in North Africa and the Middle East it is critical that American energy production gets up and running again,” Rep. Charles Boustany, R-Lafayette, said.

Sen. David Vitter, R-La., tempered the enthusiasm when he said that since the deepwater drilling moratorium, the Interior Department had destroyed jobs. “One deepwater permit is a start, but is by no means reason to celebrate,” he said.

Vitter had placed a hold on supporting an Interior Department nominee’s job in response to Salazar’s actions regarding offshore drilling and wants the issuance of at least 15 deepwater drilling permits before he will consider approving the nominee.

While there was appreciation for permit movement among industry insiders it was garnished with a heavy dose of cautious optimism and concern that the BOEMRE action could have been part of a larger political effort.

Several reports strongly suggested that unrest in the Middle East and North Africa, along with increased pressure to drill in the Gulf were behind a disguised effort by the Obama Administration to gain domestic favor where it has been lost.

“I don’t think we will see [permits being issued] as quickly as we used to but at least we are in the process,” Terrebonne Economic Development Authority Chairman Don Hingle said. “If they are just throwing us a bone – shame on them.

“I know the administration and environmentalists hate oil, but that’s all we have for now. Until we get some kind of alternative fuel that is affordable and we can retool the entire country, that’s just not going to be the case. We need a backup plan with oil until we get something else,” Hingle added.

“Without a streamlined process [in issuing drilling permits] established, we will continue to see job loss, a rig exodus, and curtailed domestic production,” Briggs said. “With rising energy prices and turmoil in the Middle East taking a turn for the worse, it is more important than ever that we get back to work in the Gulf of Mexico and ensure our nation’s energy future.”

According to Noble Energy, the company is to resume deepwater operations in late March. They will target a drilling depth of 19,000 feet, with results expected by the end of May.

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Uniformity of the law is an asset when governmental bodies address shared issues, those that transcend geographic and political boundaries.

Such was intent when, more than a year ago, the Bossier Police Jury and Caddo Commission jointly pursued a study by the Atlanta firm Arpeggio Acoustic Consulting to establish a baseline of and thresholds for noise levels in the two parishes. The consultant took more than 800,000 sound recordings over two weeks in the two parishes.

The primary impetus for the study and ensuing new laws that govern future development, not existing noisemakers, is the expected influx of noisy compressors related to exploration of the Haynesville Shale natural gas formation. In the shorter term, there’s also the issue of noise arising from growth into more rural areas.

In the end, the two parishes adopted nearly identical laws, Bossier early this year and Caddo a week ago. The operative word here is nearly.

Caddo’s law digresses from its eastern neighbor’s, in part, by allowing noise levels five decibels higher than Bossier’s. That’s about the difference between a hair dryer and a dishwasher, according to the National Institute on Deafness and Other Communication Disorders.

“This was a judgment call by the commission that the levels originally in the draft were too stringent on the people who would generate the noise.” explained Charles Grubb, the Caddo Commission’s attorney.

In the wake of Caddo’s vote, Jodee Bruyninckx, regional director of the Louisiana Oil and Gas Association, said she wants Bossier to bring its noise ordinance in line with Caddo’s slightly less restrictive law.

One problem for Bossier is whether its law, if amended, would be defensible in court, said Patrick Jackson, the Bossier Police Jury’s attorney. Arbitrarily setting a noise level different than that suggested by the consultant would undermine the study that cost the parishes thousands, he said.

“We have already been told that we are going to be challenged. … The only way you can beat it is that you have objective, scientific data to support whatever you did.”

From a legal standpoint, Grubb said, it would have been simplistic for Caddo to adopt the standards set forth by the consulting firm. A presentation to commissioners in their meeting chambers showed people perceived an incremental increase in sound when the level was raised by five decibels, he added.

Jackson said he would recommend changing Bossier’s law to match Caddo’s only if the consultant thinks the five decibel change is tolerable and the parish can justify it in court “because we want to, as best we can, have mirror image ordinances just to make it easier for business and everybody else.”

That’s the key, adopting laws that consistently address noise levels throughout the Haynesville Shale region for the benefit of all involved.

The expected noise from natural gas compressors is not here yet. So, as Grubb notes, it’s unlikely anyone will know anytime soon how effective the two parishes’ laws are.

Meantime, we still have time to bring the laws into alignment, to the uniformity that was the original intent, by changing Bossier’s or Caddo’s. Fans of peace and quiet, where we can get it, we favor the lower decibel level.

“We knew from the get-go it would be a miracle to come up with an ordinance that did not require adjustments as time goes by, Grubb said of Caddo’s law.

It would be better to do it sooner than later.

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Legislative Fiscal Office Chief Economist Greg Albrecht created a minor furor last month, when he said that an obscure tax break for horizontal drilling could be costing the state millions of dollars in mineral revenue.

The item ran in Daily Report on a Friday, and it was splashed across the front page of The Advocate the following day. By Monday, Don Briggs, president of the Louisiana Oil & Gas Association, had issued a response, saying Albrecht’s conclusion “could not be further from the truth.”

Briggs says factors such as the low price of natural gas are causing the revenue decline. Albrecht says he takes those other factors into account, but they still don’t explain why he lowered his mineral revenue forecast by nearly $40 million for this fiscal year and over $80 million next year, despite rising oil prices and booming gas production in north Louisiana’s Haynesville Shale formation.

“I don’t know how else to say it: The money’s not here,” Albrecht says. “I don’t have another explanation. If someone else does, please educate me.”

The horizontal drilling exemption is only one of hundreds of tax breaks and incentives that could face scrutiny this year, as legislators grapple with an expected $1.6 billion budget deficit.

Eddie Ashworth, director of the Louisiana Budget Project, is among the growing chorus arguing that repealing, or at least pausing, some of those tax breaks might make more sense than slashing education or health care. He says exemptions cost the state some $7.1 billion last year, nearly as much as the $7.7 billion or so in state revenue expected this year.

“We’re long since past the skin and the muscle,” he says. “We’re sawing on bone now.” Ashworth isn’t saying lawmakers shouldn’t cut spending; he just thinks they could use a “more balanced approach.” The Budget Project is part of the Better Choices for a Better Louisiana coalition, which has been questioning the tax breaks and calling for a moratorium on new ones, at least until the ones the state has are analyzed for effectiveness.

Defenders of a particular tax break or incentive typically say the economic-development impact justifies the lost revenue. But while some measures carry built-in sunset provisions, there’s no thorough, systemic review process. If the cost soars, it’s possible hardly anyone even notices. Last year, the Legislature passed two measures calling for more scrutiny, Ashworth says, but nothing has been implemented.

“Show me the data,” he says. “If I sound cynical about this, that’s because I am.”

He says the annual report from the Department of Revenue typically states each tax break is serving its purpose “in a fiscally effective manner,” often without providing analysis to support the assertion.

Gov. Bobby Jindal is calling for the extension of the Quality Jobs Program, the Research and Development Tax Credit, the Technology Commercialization program, and, with enhancements, the Digital Interactive Media Production Tax Credit. He says the incentives help create good-paying jobs and keep Louisiana competitive with other states with similar programs.

A spokesman says the administration is reviewing other programs that are set to expire, but supports continuing every one that isn’t. To the administration, eliminating a tax break is the same thing as a tax hike, and tax hikes are unacceptable.

“Likewise, that is our position,” says John LeBlanc, who works on tax policy for the Louisiana Association of Business & Industry. “Our platform for the year is to defend against any business tax increase or fee increase. … In the past, when [the Legislature] has looked for more money, it’s been directed towards business interests.”

A conservative could argue that incentives skew the free market. For example, why should government give preferential treatment to a certain type of drilling? Why not tax everyone the same, and let companies decide when, where and how to drill? Much like the federal tax code, the state tax system goes beyond its revenue-raising mission and seeks to encourage or discourage certain activities.

“Historically, when people talk of tax reform, it usually entails tax increases,” LeBlanc says. “We’re not looking to do any tax reform this session.”

It’s often hard to say definitively if a specific investment would or wouldn’t have happened without a certain tax break or if a state with a more generous program would have snagged the project. Economist Loren Scott, who defends the horizontal drilling tax break on economic development grounds, nevertheless says legislators likely will be scouring the books for incentives the state can do without.

“You’ve got to look at the tax exemptions,” he says. “Some of these exemptions I’m sure could go away, and there’d be very little impact on the state.”

Eliminating a tax break takes the support of two-thirds of each house of the Legislature, just like any other tax increase. Legislators, however, can suspend a law without the governor’s signature for no more than 60 days past the end of the subsequent regular session, by the same vote margin that was required when the law was passed.

So the state constitution seems to say a tax break that passed with a simple majority can be suspended by a simple majority, although there is some disagreement on this point. Albrecht says two-thirds votes were obtained for sales tax suspensions in past years.

Ashworth knows Jindal and the business lobby are on the other side of this issue, but says he’s encouraged that House Speaker Jim Tucker and Senate President Joel Chaisson have made noises about considering at least suspending some of the tax exemptions.

“That’s a long way,” Ashworth says, “from where these guys were a year ago.”

A CLOSER LOOK

Four state tax breaks that could face scrutiny during the next legislative session:

Horizontal drilling: Companies receive a 100% severance tax deduction for the first two years of production or until the well cost is paid off, whichever comes first. The Louisiana Department of Revenue has estimated the five-year cost of the tax break at $167.5 million, but economist Loren Scott says the break makes the Haynesville Shale play attractive to companies that wouldn’t be in Louisiana otherwise, boosting state income taxes and north Louisiana’s economy.

Film tax credits: The Center on Budget and Policy Priorities says film subsidies only pay off between 7 cents and 28 cents on the dollar. State officials say more money is being spent in Louisiana as the homegrown industry infrastructure matures; a new report on the effectiveness of state film incentives is due soon.

Sales taxes: Companies get to keep 1% of the state sales taxes they collect as a reward for filing their return on time, Eddie Ashworth, director of the Louisiana Budget Project, says. The cost to the state is in the neighborhood of $34 million, he says.

Coin bullion: Purchases of more than $1,000 worth of gold or silver coins are exempt from sales taxes. “I have no clue as to why,” Ashworth says. “And who cares?”

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LOGA Comments – The development of the Haynesville Shale has resulted in the injection of over $13 billion dollars in capital investment to the state of Louisiana.  This was only possible through the state of Louisiana’s Horizontal Well Severance Tax Investment Incentive.  The following article notes the emergence of a new and abundant resource play that will depend heavily on this investment incentive.  If the state decided on a short-sighted policy to repeal the incentive, we can all say goodbye to the Tuscaloosa Marine Shale.

Could an oil boom be in Central Louisiana’s near future?

Geologists have known for decades about the existence of an oil formation called the Tuscaloosa Marine Shale, located more than two miles below the ground that cuts a swath across Central Louisiana into Southeast Mississippi and southward.

The Advocate newspaper has reported that leasing companies are snapping up the rights to drill on land north of Baton Rouge and in Avoyelles Parish.

“Preliminary evaluations indicate that the Tuscaloosa Marine Shale may contain a potential reserve of about 7 billion barrels of oil,” reads a 1997 report from the Basin Research Institute at Louisiana State University. “Horizontal drilling could maximize production and minimize environmental impacts.”

Chris John, president of the Louisiana Mid-Continent Oil and Gas Association and a former Louisiana congressman and legislator, said landmen now are starting to appear in parish clerks of court offices across Central Louisiana to see who owns the land on which oil companies might want to drill. The association lobbies on behalf of the oil and gas industry.

“We knew that Tuscaloosa was there,” John said. “It sweeps all through Central Louisiana to right up here north of Baton Rouge.”

The activity is “in the very, very early stages,” he said.

Connie B. Couvillon, Avoyelles Parish Chief Deputy Clerk of Court, said eight to 12 men working for oil companies have been in her office every day for the last six months researching land ownership records.

“I’m very excited about it,” Couvillon said. “What it brings into the parish with the oil leasing, what it would do for the overall economy of the parish …”

“Bring it on,” Couvillon said.

Rapides Parish Clerk of Court Carolyn Ryland said she’s seen “a few new faces” in her office, but she doesn’t know if they’re there scouting land ownership for oil leases.

The same technology that made the Haynesville Shale natural gas fields of Northwest Louisiana economical — horizontal drilling and hydraulic fracturing, or fracking — could now mine for a profit the oil that sits trapped by shale under Central Louisiana.

“Now it makes sense economically to go in there and do it,” John said, “if we can keep the government and the regulators off of our case because of fracking.”

Fracking has been used widely only in the past few years. The practice involves injecting water into wells to help force natural gas and oil to the surface. Much of the water injected into wells also returns to the surface and is disposed of.

The U.S. Environmental Protection Agency is studying the effects of fracking “to better understand any potential impacts “on drinking water and groundwater,” the EPA said on its website.

Drilling and production on state lands is regulated by the state and should stay that way, John said.

There was a leasing frenzy in the mid-2000s in Northwest Louisiana where landowners signed leases for access to their property worth upwards of $50,000 per acre and 25 percent royalties.

John said he doesn’t expect the same land-bidding war in the Tuscaloosa play because of oil companies’ concern over government regulations that could squash the profit out of the wells

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Construction crews have begun laying a 42-inch-diameter pipeline that will run straight through the heart of Rapides Parish, a project that will flow the riches of the Haynesville Shale natural gas fields to markets in South Louisiana and beyond.

Some of those riches will hit Rapides Parish — albeit mostly temporarily — as dollars from having some of the construction done here hits the local cash registers of restaurants, mechanic shops, rental companies and hotels. And, some veteran pipeline workers who live here will reap good money on a project not far from home.

“Just the fact that Louisiana has the best talent around for pipelines, they’re naturally going to get their share,” said Rick Rainy, spokesman for Enterprise Products Partners LP, which has joined with another company to build the $1.6 billion pipeline.

Rainy said there would be permanent employment for a few pipeline technicians in Rapides once the line is flowing.

Acadian Gas LLC, the joint venture of Enterprise and Duncan Energy Partners LP, will own the pipeline, which is an extension of the Acadian Gas network of pipelines in South Louisiana to the Haynesville gas fields.

Welders and other construction workers already are connecting the 40-foot pipe sections and digging the trenches for the 270-mile line from Northwest Red River Parish to Ascension Parish near Donaldsonville.

Different contractors are handling the work simultaneously: Wilbros is laying 106 miles of 42-inch pipe from north Red River Parish through Desoto and Natchitoches parishes, ending in Boyce.

Michels Pipeline Construction will lay 36 miles of 42-inch pipe from Boyce to near Cheneyville, where a compressor station that will give the gas a boost is under construction. From there, the diameter will be reduced to 36-inch, which Michels will lay to Donaldsonville.

Construction is scheduled to be completed by August, Rainy said.

“It will have a great impact locally,” said Elton Pody, Central Louisiana Chamber of Commerce president. “When you put 200 to 300 people to work in a region and work them for six to eight months, you’re talking about several million dollars.”

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