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The Coast Guard continues its response Thursday to the report of a ruptured condensate oil and natural gas pipeline near Cameron, La., received Wednesday by watchstanders at Coast Guard Marine Safety Unit Lake Charles.

At approximately 8:30 p.m., Wednesday, the dredging barge Bayport reported that a 12-inch, condensate oil and natural gas pipeline was ruptured during a dredging operation within the Calcasieu Ship Channel.

The Coast Guard Captain of the Port immediately established a two-mile safety zone around the area and a broadcast notice to mariners was issued, urging mariners to proceed with caution when transiting this area. The Captain of the Port also closed the Calcasieu Ship Channel to all traffic as of 9:42 p.m., Wednesday.

The Coast Guard Captain of the Port has reduced the safety zone from a two-mile radius to 1,000 yards. This will allow vessels with drafts less than 32 feet to navigate safely around the established 1,000 yard safety zone. Once the Captain of the Port has verified that the pipeline poses no risk to 40-foot draft vessel traffic, the Calcasieu Ship Channel will be reopened.

At 8:15 a.m., Thursday, an MH-65 Dolphin helicopter and crew was launched from Coast Guard Air Station Houston to assess the extent of pollution.

The aircrew did not observe any visible signs of condensate oil pollution in the water.

The platform A, located in West Cameron block 62, owned by El Paso Exploration and Production Company, L.P., has been shut-in.

Stingray-Enbridge, the pipeline owner, has been identified as the responsible party. Stingray-Enbridge is mobilizing personnel and skimmers to commence clean-up activities.

The Coast Guard and the Bureau of Ocean Energy Management, Regulation and Enforcement are investigating the cause of the incident.

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The Louisiana Oil and Gas Association Pres. Don Briggs’ comments on Pres. Obama’s energy policy:

President Obama outlined his plans for a national energy policy by calling for a thirty-percent reduction in U.S. imports of foreign oil. With average national gasoline prices at $3.54, the Administration is feeling the political heat and attempting to deflect blame for rising energy costs.

In his address, President Obama noted that the recovering global economy, economic growth in India and China, and turmoil in the Middle East has resulted in energy demand and price increases. The President claimed that limited domestic production and growing foreign dependency has created volatile price fluctuations for years. Obama noted, “We’ve known about the dangers of our oil dependence for decades, and every President has said that we need to seek energy independence.”

In an effort to limit our dependence on overseas oil, President Obama suggested that we increase our support of importation from friendly, neighboring countries like Mexico and Canada. In addition, the President touted the prospect of new discoveries off the coasts of Brazil as a substantial long-term source of energy for the U.S.

To help ramp up Brazil’s new oil production, the President called for the support of American know-how to take advantage of the South American nation’s newfound resources. Currently, the U.S. imports nearly 11 million barrels of oil per day. Unfortunately for the President’s plan to increase importation from neighbors, it’s a fact that nearly half of our nation’s imported oil already comes from Canada and Mexico. So where are these new oil imports going to originate?

In regards to Brazil, it seems hypocritical that the Administration would support $2 billion dollars in U.S. investment in Brazil’s offshore industry while continuing to shut down energy development in the Gulf. It seems that American tax dollars along with “know-how” will ensure Brazil’s economic future. The one thing that is certain for our economic future is that we plan to shift dependency from one source to another.

For the U.S. to achieve these reductions in oil importation we are going to either need to use less energy or find more. President Obama asserted that his Administration is working to support exploration and push the oil industry to take advantage of the opportunities they already have. As a talking point, Obama took note of the Interior’s recent offshore lease report that claimed over two-thirds of leases are inactive. Outlined in the new energy plan are measures to potentially shorten the terms of offshore leases.

A simple question, how can you incentivize oil and gas production while limiting lease terms? This policy approach makes little sense and will certainly backfire by resulting in higher developmental costs for companies and additional delays for production to come online. The President is correct that there is no short-term fix for the energy problems we face as a nation.

He is also right on point with his call to increase the use of natural gas as a larger factor in our nation’s energy future. However, today’s speech and energy plans seem to be some of the same rhetoric of Presidents past. Until we see a concerted effort by this Administration to expedite permitting in the Gulf of Mexico, talks regarding energy independence are nothing more than talk.

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Incentive encourages gas drilling

By TED GRIGGS

Eliminating a tax break for horizontal drilling could cost the Louisiana millions of dollars in revenue rather than increase the severance taxes collected from wells in the Haynesville Shale, according to an industry-funded study.

“What my work shows is that the benefits to the state treasury from this economic activity swamp the cost to the state of having the exemption in place,” said economist Loren Scott, author of the study for the Louisi-ana Oil and Gas Association.

A state law exempts horizontally drilled wells from severance taxes until the drilling company recovers the cost of a well or for two years, whichever happens faster. The state Legislative Fiscal Office and Department of Revenue have estimated that the state has missed out on more than $200 million in severance taxes in the past three years.

In 2010, that meant Louisiana didn’t collect an estimated $125.3 million in severance taxes, Scott said. But the state gained $367.7 million in revenue through the incentive program. That works out to a gain of nearly $3 in revenue for every dollar given up through the tax break.

From 2008-09, exploration and production companies pumped $11.4 billion into northwest Louisiana’s economy, he said.

Scott said one might argue that the state could collect the severance taxes and the other revenue, but the reality is that the Haynesville Shale, and Louisiana, must compete with other shale formations.

And the Haynesville has a few features that make it less attractive than other shale formations, Scott said, including:

n It has higher drilling costs, $9 million to $9.7 million per well compared with around $6 million elsewhere.

n Wells produce only natural gas, which makes them less lucrative than formations that produce oil and gas.

n Wells have one of the lowest rates of return on investment, 15.9 percent, less than half the return on wells in the Eagle Ford and Marcellus formations in Texas and Pennsylvania.

Other formations are already attracting drilling rigs from the Haynesville, Scott said. On Feb. 26, 2010, the rig count in north Louisiana was 137; a year later, that number was 112.

Eliminating the tax break would speed up the migration of rigs elsewhere, he said.

Eddie Ashworth, director of the Louisiana Budget Project, said oil companies drill where there is oil and gas, not because of tax breaks.

“You can have the greatest tax incentive program in Hawaii, and there’s not going to be a single oil company that’s going to go over there and drill wells because there’s no oil and gas over there,” Ashworth said.

The Haynesville was, at the time of its discovery, the largest gas play in the country’s history, Ashworth said. Even though other shale formations have higher rates of return, the Haynesville remains “a very, very attractive play.”

“You know that because what the oil companies are willing to pay for drilling rights,” Ashworth said.

Before the Haynesville, mineral leases in the area ran around $100 to $150 an acre for the first year, he said. Once the shale was active, the payments soared to $26,000 an acre, and that had nothing to do with the incentive program. The prices were based on the huge amounts of natural gas and low drilling risk, he said.

Although legislators have said there is little chance the tax break would be repealed, and Gov. Bobby Jindal has said there is no chance he would sign any law changing the exemption, the state’s oil and gas industry remains nervous.

Randy Haynie, an industry lobbyist, said the worry is that the Legislature, facing a $1.6 billion shortfall, will seize upon the exemption as an opportunity to pick up $90 million in one chunk without considering the bigger picture — a drop in activity in the Haynesville and lower overall revenue for the state.

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The oil and gas industry has cleared more major hurdles in getting people back to work in the Gulf. And now, four deepwater permits have been approved in the last few days.

The United States has given the thumbs up for the sixth deepwater drilling permit since the moratorium was put in place after the oil spill. Four of those permits happened only in the last couple days.

“There were 32 projects going on in the Gulf of Mexico in deep water at this time so we have six, we so still have a ways to go but it’s coming” says Oil and Gas Administration President Don Briggs.

But officials say, the progress isn’t moving fast enough.

“This is a positive sign that we’re moving forward in the Gulf of Mexico with deep water drilling, but it’s not fast enough” says Representative Dr. Charles Boustany.

But, shallow water permits are moving even slower. There have been about three approved this month, but officials say it should have been closer to 15 or 20. But, why the slow progress in both deep water and shallow water drilling? Officials think most of it, can be blamed on politics.

“Part of it is political because of the White House, and they have this inherit hostility towards American energy production and particularly oil and gas production, they’ve basically stated that” says Boustany.

“I feel that if the administration wanted us to drill we would be drilling” says Briggs.

It’s really important right now for us to drill in our own backyard. Not only does it create jobs, but the more we drill here, the less dependent we become on foreign sources of energy.

“We want to see that back to full speed because with the price of gasoline at the pump, with the price of diesel for our farmers and the consideration that we’ve got the unrest in the Middle East and oil prices where they are today, we ought to be drilling a lot right now” says Boustany.

So, the Louisiana delegation is leading the way to keeping the pressure on the US Government.

“The Louisiana delegation is continuing to keep the pressure on and pushing very hard with the administration to move forward” says Boustany.

It’s vital to move forward because officials believe the US energy strategy shouldn’t include penalizing the current sources of energy.

The expansion of domestic oil and gas production will have little short-term effects on gas prices. But at a March 11th press conference on rising gas prices, President Obama called on the Interior Department to report back about the number of unused leases on public lands. The review is expected to be delivered to the White House in the next couple days.

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Tasked with alleviating the state’s $1.6 billion budget shortfall, Louisiana’s state legislature and the Jindal Administration are searching for new sources of revenue to balance the state’s hemorrhaging fiscal issues. On the potential chopping block are various tax exemptions and investment incentives provided by the state.

One investment incentive being discussed is the incentive to promote the exploration and development of oil and gas wells that involve horizontal drilling.

The state of Louisiana allows for the suspension of severance taxes due on production from horizontal and deep wells through eligibility of a two year severance tax exemption or until payout of qualified costs, whichever comes first. The Horizontal Well Severance Tax Investment Incentive is a key factor to the economic development of the Haynesville Shale in northwest Louisiana.

Recently, Dr. Loren Scott, Professor Emeritus at Louisiana State University, conducted an extensive study that refutes

arguments proposed by some who say the state is loosing money by offering the horizontal tax incentive to the oil and gas industry. Contrary to these arguments, the incentive study proves that state revenues would actually decline if lawmakers repeal current oil and gas incentive programs.

Dr. Scott’s economic analysis determined that for every dollar the state of Louisiana gave up via the horizontal well severance tax investment incentive it gained $2.94 in revenues to the State Treasury. By utilizing the Department of Revenue’s Tax Exemption Budget data, it was estimated that in 2010, the state gave up $125.3 million, but it gained $367.7 million.

The study makes the case that the Haynesville Shale Play is one of many resource plays in the U.S. and Canada competing for exploration activity and capital investment dollars. Compared to other shale plays across the nation, the Haynesville Shale is one of the most expensive to drill at $9-$9.7 million per well, produces only dry gas, and has one of the lowest rates of return on investment (15.9%).

Dr. Scott notes, “The Haynesville 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.”

With record low natural gas prices, increased competition, and extremely expensive drilling costs, retaining the Horizontal Well Investment Incentive is key to ensuring that the Haynesville Shale development continues into our state’s future.

As the legislature convenes next month and addresses our looming economic woes, it’s crucial that lawmakers avoid policies that stand to harm industries that support job creation, investment dollars, and generate substantial revenue to the state. Repealing the Horizontal Well Severance Tax Incentive is a shortsighted policy approach that would actually exacerbate our state’s revenue shortfalls. From a long-term perspective, repealing the incentive would bring about a decline in Haynesville Shale growth, and most importantly, it would chase away significant future tax revenue from the state.

To view an electronic version of “The Economic Impact of the Horizontal Well Severance Tax Investment Incentive” study, please click here.

Original Article