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NEW ORLEANS

Gov. Bobby Jindal says there’s no chance that he would sign into law any change in a tax exemption affecting natural gas drilling in Louisiana’s shale formations.

Under a 1994 law, the energy industry has been exempted from paying about $220 million in gas severance taxes from production in the Haynesville Shale of northwestern Louisiana.

The exemption covers a technique in shale exploration known as horizontal drilling.

After speaking to the Louisiana Mid-Continent Oil & Gas Association in New Orleans on Thursday, Jindal says repealing or lowering the exemption would simply drive energy companies — and their jobs — to shale formations in other states.

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President Barack Obama’s imprudent moratorium on drilling for oil in the Gulf Of Mexico cost not only the Gulf region but also the nation billions of dollars and tens of thousands of jobs.

So said Joseph Mason, a professor at Louisiana State University in his testimony last week before the House Subcommitte on Energy and Power.

The negative impact of Obama’s six-month crack down on energy exploration in July 2010, Mason testified, which followed the Deepwater Horizon explosion and oil spill in May, is even worse that he originally estimated.

Dollar and job losses mounted daily during the moratorium, and not just because the oil workers lose jobs and stop producing oil. The region around the Gulf also depends on economic activity the drilling generates.

Obama lifted the moratorium in October, much to the regret of environmentalists.

The Losses

The subcommittee heard Mason deliver a shocking tally of the financial losses Obama imposed not on himself or his rent-seeking and corrupt political cronies, but on the hard-working oilmen who perform dangerous jobs to keep gasoline flowing into limousines of Washington’s political class.

Those losses are most easily seen in multiplier estimates updated for the additional length of the de facto moratorium on deepwater development. Using the same methods described in my earlier report – but accounting for delays following the official end of the moratorium – is it apparent that economic losses to the region continue to mount.

… [O]utput losses continue to mount with stalled development in the Gulf, rising from $2.1 billion regionally and $2.8 billion nationally to $3.3 billion and $4.4 billion, respectively. Job losses are estimated to have increased from 8,000 regionally and 12,000 nationally to 13,000 regionally and 19,000 nationally. Lost wages previously estimated to amount to $500 million regionally and $700 million nationally are now $800 million

regionally and $1.1 billion nationally. Finally, lost tax revenues estimated to be $100 million on the state and local level and $200 million on the national level now amount to $155 million and $350 million, respectively.

Each day, more exploration and development activity in the Gulf is lost. The lost output will not be regained and the lost wages cannot be spent. We knew all along that even the most honorable businessmen could not support their workers without revenue income in the long term. We are now progressing into that long term. As rig workers and other employees directly related to oil and gas development tighten their belts or leave the region, the rest of the region suffers.

These completely predictable events are even worse than those Mason predicted after Obama slammed the door shut on drilling. Mason offered the bad news in his report, “The Economic Cost of a Moratorium on Offshore Oil and Gas Exploration to the Gulf Region,” published by the Institute for Energy Research.

Mason’s report explained basic economics, which Obama ignored. A drastic move such as Obama’s, Mason explained, would send a ripple of consequences through the economy; i.e., not just oil rig workers and their families are affected by such sweeping mandates. Others who run businesses that depend on the oil rig workers get hurt, too.

A significant halt to oil and natural gas exploration and drilling would not just affect upstream and downstream industries, but could also impact state and local governments, as well as small retail stores, education services, healthcare assistance, and a host of other industries.

The effective six-month moratorium on offshore oil and natural gas production will result in the loss of approximately $2.1 billion in output, 8,169 jobs, over $487 million in wages, and nearly $98 million in forfeited state tax revenues in the Gulf states alone. Additionally, although a significant portion of oil and natural gas production is localized in the Gulf, the U.S. is a fully integrated economy, so there is an expectation that the loss will “spill-over” into other states. From this spillover effect, there could be an additional loss of $0.6 billion in output, 3,877 jobs, and $219 million in potential wages nationwide. Moreover, the federal government stands to lose $219 million in tax revenue. These losses are dramatic in both the context of local economies in which the oil industry operates, and on a national scale.

Lifted

Obama lifted the moratorium in October but did not issue new permits until March. The first went to Royal Dutch Shell, the Houston Business Journal reported, for exploring in 3,000 feet of water about 130 miles offshore.

Obama’s chief drilling regulator says some oil companies have ignored the significance of the Deepwater Horizon spill.

The Gulf states weren’t the only region affected by Obama’s panic-button order to stop drilling for half a year. He also ended the sale of drilling leases off the coast of Virginia.

Original Article

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State revenues would actually decline if lawmakers repeal current oil and gas incentive programs, according to a new study by Dr. Loren Scott, Professor Emeritus at Louisiana State University.  The study refutes arguments proposed by some who say the state is leaving money on the table by offering the tax incentives to the oil and gas industry.

“The Haynesville Shale play is just one of many resources available to investors in the United States and Canada. It is one of the most expensive to drill and has one of the lowest rates of return.  Therefore it is unreasonable to assume that by removing the tax incentives, Louisiana stands to make millions of dollars from a captive industry.  On the contrary, our study shows that for every one dollar given up through the incentive program, the state gained $2.94.  However, if you take away the incentive, the state actually loses money in even the most conservative scenarios,” says Dr. Scott.

He says a combination of the decline in natural gas prices, the “Competition Factor” and the “Cost of Drilling” makes it difficult if not impossible for investors to be successful in Louisiana compared to other shale plays without the incentive program.

“It is clear that the Louisiana natural gas fields are what we call ‘dry fields’ which are deep in the Earth and have no simultaneous oil production.  These are less valuable and more costly than the shallow, ‘wet gas fields’ found in other parts of the country where exploration companies can harvest both natural gas and oil at the same time.  So we already have two strikes against us from a competitive standpoint.  And nobody could have predicted the wild fluctuations in natural gas prices from $13/mcf to under $4/mcf.   So by eliminating the incentive program, it’s likely that the pace of exploration and drilling would fall off significantly and we would expect existing companies to either move to more profitable areas or wait for the price to rise.  In either case, it’s not good for state or local governments, employers or employees,” Dr. Scott adds.

To download a full copy of the study please click Here.

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The federal agency tasked with issuing offshore drilling permits has approved the first exploration plan for the Gulf of Mexico since the Deepwater Horizon oil spill nearly one year ago.

The Bureau of Ocean Energy Management Regulation and Enforcement, which replaced the U.S. Minerals Management Service in 2010, approved the supplemental exploration plan submitted by Shell Offshore Inc.

“This exploration plan meets the new standards for environmental review and marks another important step toward safer deepwater exploration,” Interior Secretary Ken Salazar said in a news release.

The approval brings Shell a step closer to being able to drill three exploratory deepwater wells in the Gulf of Mexico, The Associated Press reported. A drilling permit still is needed.

Federal officials put a moratorium on deepwater Gulf drilling following the BP Deepwater Horizon disaster. The moratorium was lifted in October, but BOEMRE only recently has resumed issuing permits.

“Are we glad to get it? Darn right,” said Don Briggs, president of Louisiana Oil and Gas Association. “Are we behind? Yes.”

Permits that BOEMRE issued earlier this year allowed the resumption of Gulf drilling by already-permitted, already-drilling operations. These would be the first permits for new exploration in the Gulf of Mexico since the oil spill in April.

Prior to that, an average of five permits were issued each month, Briggs said.

“We’ve got a total of four in almost 11 months,” he said.

The plan by Shell Offshore, a unit of Royal Dutch Shell PLC, proposes drilling three exploratory wells in 2,950 feet of water about 130 miles south of Cameron Parish in the company’s Auger field.

“BOEMRE’s handling of Shell’s Exploration Plan should serve as a guideline for future agency assessments of new offshore development plans,” said Chris John, president of the Louisiana Mid-Continent Oil and Gas Association, in a news release. “We look forward to this being the first of many announcements in getting companies back to work in the Gulf of Mexico.”

Original Article

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This month marks the third anniversary of the announcement of the Haynesville Shale in northwest Louisiana, and fitting for its birthday the natural gas play has earned the title of the nation’s top producer by surpassing production of its older competitor, Texas’ Barnett Shale.

The U.S. Energy Information Administration reported Friday pipeline flows show that the Haynesville Shale is producing about 5.5 billion cubic feet a day of natural gas, while the Barnett Shale is producing about 5.25 billion cubic feet.

Louisiana’s natural gas production surpassed 2 trillion cubic feet in 2010 for the first time since 1982, and represents a 36 percent increase over 2007 — the year before Haynesville production began on a large scale. The EIA reports that while the Barnett Shale did not reach 5 bcf daily until nearly its 10th year of production

Nearly 2,000 natural gas wells have been permitted so far toward the goal of what industry leaders say eventually will be 10,000 to fully develop the play.

And while drilling activities are expected to slow later this year as leases are held to production and operators search out more oil-based plays, the nationwide debate continues about the hydraulic fracturing technique that is necessary to release the trapped natural gas. Officials in the Northeast are the most vocal against it, including some members of Congress who this week have filed legislation requiring public disclosure of the frack chemicals and restrictions on the process.

Louisiana last week released a report by a non-profit group of stakeholders that studied the state’s laws concerning fracking and found them to be well-managed, albeit adding some recommendations for improvement. But so far nowhere have there been any confirmed reports that fracking has contaminated water supplies.

The overall misconception, said professional geologist Bill Godsey, of Longview, Texas, is that the fracking fluids that are being forced into the well to prop open the shale and release the gas are pooling underground and will eventually migrate and contaminate ground and surface water sources.

“That’s not true,” Godsey said. The reason: “There are thousands of feet of impermeable materials in the ground, shales and clays, limestone and other materials that serve as impermeable barriers to flow. In other words, the oil and gas are trapped by these rocks anyway. So if it will hold gas in the ground it will certainly hold water. That’s why these reservoirs are there in the first place; because we have these impermeable barriers to flow.”

And on the other side there are people like Katie Fried, senior communications manager of Washington, D.C.-based Food & Water Watch, who calls for an end to all hydraulic fracturing in the U.S., saying in a news release Wednesday that a ban would erase doubts and protect drinking water from a “reckless, poisonous practice.”

Fracing not new

The stimulation of natural gas wells through hydraulic fracturing is not a new practice, as some opponents claim. It’s been documented over the past 60 years.

But big shale plays like the Barnett and Haynesville, along with the Fayetteville in Arkansas and Marcellus in the Northeast, brought it to the forefront through the revelation of the multi-stage horizontal, not vertical, fracking process.

“I was fracking in the Carthage Field in 1976,” said Gary Hanson, LSUS’s resident hydrologist and Red River Watershed Management Institute director. “There have been over 2 million frack treatments since 1949 and there’s never been a documented case of a fracture causing pollution to an aquifer. All of the data shows it’s not going to get that shallow.”

He added: “Fracs are not going to go through these formations. More fractures go down rather than up. They look for brittle rock, but you’re still 2 miles away from fresh water.”

But at issue with fracing opponents is the small percentage (1 percent or less) of chemicals, or proppants, added to the water and sand then forced into the well to open the fractures and release the natural gas. The chemical makeup is largely guarded by the completions companies because of the competitive nature of the business.

Congressman Maurice Hinchey (D-NY) this week joined U.S. Rep. Dianna DeGette (D-CO) to re-introduce the Fracturing Responsibility and Awareness of Chemicals Act (FRAC Act) to require the disclosure of what Hinchey terms as “cancer-causing chemicals used in the drilling process.”

“While the natural gas industry would like to pretend that the current regulatory framework is sufficient to protect the environment, drinking water and public health, scores of citizens throughout the country are telling a different story,” said Hinchey in a news release Wednesday. “We need to know exactly what chemicals are being injected into the ground and we must ensure that the industry is not exempt from basic environmental safeguards like the Safe Drinking Water Act. The FRAC Act is an important first step toward protecting people from the risks of hydraulic fracturing.”

The bill failed to advance during two previous attempts, but if successful in future attempts it could have a chilling effect on the industry.

The fundamental problem with the bill is that it’s based on “incorrect information,” said Lee Fuller, executive director of Energy In Depth, in a news release. “Its backers say it’s meant to restore EPA regulation over hydraulic fracturing under the Safe Drinking Water Act, even though SDWA has never in its 37 years been used for that purpose. Its backers say it’s about forcing companies to disclose the composition of the 0.05 percent of the solution that’s not water and sand, even though just about every state regulatory agency in the country will attest that such information is already available.”

Even New York’s state geologist calls the problems exaggerated. Taury Smith was quoted Monday in the Times Union newspaper as saying he has been “examining the science of hydro-fracturing the shale for three years and has found no cases in which the process has led to groundwater contamination, although several portrayals by anti-fracking groups and featured in the press have raised concerns about underground pools being harmed because of drilling.”

Louisiana weighs in

The state of Louisiana last year invited a review of its hydraulic fracturing program by the independent State Review of Oil and Natural Gas Environmental Regulations, Inc. (STRONGER). The team concluded in its final report released March 11 that the Louisiana hydraulic fracturing program is “well-managed, professional and meeting its program objectives.” Recommendations for improvements include casing and cementing standards, 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 suggestions did not surprise Jim Welsh, the state’s conservation commissioner, who said the state is already addressing its frack rules, in addition to drilling and safety rules.

The conservation office has always had the authority to request the chemical constituents of fracking fluids from the operators, but the new rule would require prior notification. Regardless, the Louisiana state police and Department of Environmental Quality already have the authority to ensure the MSDS (material safety and data sheet) and other information is on-site at well locations.

The EPA, which in revisiting the hydraulic fracturing process even though declaring it safe in 2004, is holding a series of workshops to gather information from water experts, engineers and scientists across the nation. Welsh and Hanson will take part in the EPA’s water resource management workshop March 29-30 in Arlington, Va.

Hanson is theme lead for the water use and sustainability session. He already has represented the state in workshops in Baltimore, Pittsburg and Houston. And he and Welsh were on a panel in Pennsylvania. They shared the story of the successes in the Haynesville Shale region.

This month, Welsh again will tell how industry operators that flocked to northwest Louisiana in the spring of 2008 were quickly moved from groundwater to surface water sources to limit impact to the Carrizo-Wilcox.

“We now monitor their water use, where it comes from, how much used. About 72 percent use surface water,” Welsh said. “If you had asked this question four years ago it would have been 100 percent groundwater. This is very good and shows how state government and local governments and authorities and the people who are concerned about water and industry have all gotten on the same page with the Haynesville Shale.”

Misconceptions abound

Recent news reports in New York have added the fear of radioactivity connected to the fracing process. The EPA debunked that allegation two weeks later with test results.

In other areas of the country, environmentalists blame assorted well-associated incidents on fracing. But Godsey, whose career as a geologist began in 1982 and includes conducting hundreds of groundwater investigations across the country and in different gas plays, said he has discovered the reported contamination problems surround the well head or well construction — not fracing. “A lot of time there is a misunderstanding of hydrology and the consequences of drilling.”

Still, the oil and gas companies must follow best management practices, Hanson said. “We’ve got to have this energy to make it in this society. We’ve got to have this option.”

Halliburton in November announced the introduction of CleanStim, a fracing fluid made from food materials. The company also launched on its website the disclosure of the common additives and constituents used in hydraulic fracturing activities taking place in Pennsylvania. Fluid disclosure information is forthcoming for other states in which the company operates.

Well owners also tout the safety of fracing.

Shell supports necessary and appropriate transparency in hydraulic fracturing fluid ingredients disclosure and will continue to comply with all regulations, said James Blanton, Shell’s operations manager in the Haynesville Shale.

“Shell is committed to working with the state of Louisiana and our stakeholders to safely and responsibly operate in the Haynesville Shale. Water is a precious resource and Shell is committed to conserving its use in our operations as much as possible,” Blanton said. “Hydraulic fracturing is a safe process and is effectively regulated by the state.”

Added David Carpenter, Shell’s well delivery manager: “Our completions procedures include numerous physical barriers to control the fracturing process and prevent the migration of hydraulic fracturing fluid into underground drinking water sources.”

“The safe and proven technology of hydraulic fracturing has enabled companies like Chesapeake to safely and successfully explore and extract clean-burning natural gas from deep below the earth’s surface,” said Kevin McCotter, Chesapeake’s vice president of corporate development.

“The U.S. natural gas industry and Chesapeake, in particular, has developed techniques to responsibly produce enormous new reserves of this superior fuel from deep shale formations in many areas of the country, including East Texas and Northwest Louisiana. We take great pride in the production of natural gas and in providing Americans with access to plentiful supplies of indigenous energy which give our country the opportunity to improve our environment, our economy and our energy security.”

Original Article