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By Jeremy Alford

Capitol Correspondent

Published: Wednesday, November 2, 2011 at 5:00 p.m.

BATON ROUGE — Although the oil-and-gas industry’s impact on Louisiana’s economy fluctuates with each given year, critics wonder why it’s still governed largely by a taxing method that was developed in 1910.

The very first tax on the industry was based on the severance of oil and it was levied as an occupational license tax. The severance tax followed in 1921.

There have been a handful of changes to the rates since 1910, including fluctuations from a volumetric to a percentage-of-value based tax, but the oil and gas industry has remained largely untouched by lawmakers over the decades.

It’s an interesting dichotomy, considering the industry’s value.

Oil-and-gas infrastructure accounts for a large share of Louisiana’s gross domestic product. In some Gulf Coast communities like Houma and Lafayette, it can account for as much as 20 percent, according to Moody’s Analytics.

But is it enough? Could Louisiana benefit from implementing new taxes on the oil and gas industry?

These policy questions seem to come up on a regular basis, whether as campaign issues or as proposals before the state Legislature.

The outcomes, however, are usually the same: new taxes always fail to gain momentum.

The latest example came in March when two legislative oversight committees rejected a proposed set of rules adopted by the Tax Commission that would have increased the state taxes paid by owners of certain drilling rigs. Gov. Bobby Jindal concurred with the decision.

The failed rule stipulated that lateral sections of drilling rigs should be assigned a value and taxed. As a result, the commission currently only taxes the vertical portion of wells and rigs.

Plaquemines Parish Assessor Robert R. Gravolet, chairman of the Louisiana Assessors’ Association’s oil-and-gas committee, argued that it’s a tough go taking on oil giants.

“The overwhelming advantage goes to the side of industry,” Gravolet said.

Don Briggs, president of the Louisiana Oil and Gas Association, said the industry has always been successful in these political debates because its argument remains a strong one.

“We would lose the economic impact of hundreds of millions of dollars being spent in the state,” he said. “Exploration companies would invest their drilling dollars in other regions, because the return on investment is greater with higher spot oil prices. Again, Louisiana would lose the economic impact of drilling dollars being spent in Louisiana.”

Based on a study of the nation’s top 10 oil-producing states conducted by LECG, an international expert services firm based in California, oil companies pay four major types of taxes:

- Production taxes levied on the value of the oil extracted from the ground.

- Corporate income taxes levied on the net income of corporations.

- Property taxes applicable to oil properties, which may be based on the assessed value of future expected production from oil reserves in the ground.

- Sales taxes on purchases of both inputs and equipment needed for capital improvements.

And among the 10 states surveyed, Louisiana ranks third in terms of the tax burden placed on the industry, falling behind Wyoming and New Mexico.

Still, the debate doesn’t seem to be dying, even if it is being shouldered by a select few.

In late October, Public Service Commissioner Foster Campbell, a Democrat from Elm Grove, starting beating his old policy drum again for a tax on the industry, a war cry he has chanted for years dating back to his time in the Louisiana Senate.

The conversation comes at an opportune time, just as the Legislature is dealing with the aftermath of record-setting budget shortfalls.

Today, more than 90 percent of the oil and gas processed in Louisiana comes from other states and foreign countries.

That Louisiana doesn’t actually have a processing tax disturbs Campbell.

While the argument that the industry would flee remains, Campbell said he doesn’t buy it.

“Can the oil companies move the Mississippi River that carries the giant oil tankers to Baton Rouge?” he asked. “Can they relocate the huge refineries lining the river between Baton Rouge and New Orleans? Can they rip up 40,000 miles of pipeline? Will any state besides ours accept the pollution and coastal erosion that comes with oil and gas production and processing?”

Under Campbell’s proposal, an oil processing tax would replace Louisiana’s oil severance tax.

“It would generate enough revenue to enable Louisiana to repeal its state income tax, putting us in line with prosperous states like Texas, Florida and Tennessee,” Campbell said.

That debate, however, may have to sit on a shelf for a while. The state Legislature debated a proposed constitutional amendment to allow voters in enact the new tax in 2010 and the measure failed to gained momentum.

Original Article

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From January through October, Terrebonne Parish leases were awarded by the state Mineral and Energy Board during only two meetings. For Lafourche, only three meetings have produced private investments this year.

By Jeremy Alford
Capitol Correspondent

Published: Wednesday, November 2, 2011 at 4:09 p.m.

BATON ROUGE — While interest in Louisiana’s most southern oil and gas leases is booming, activity on plots in Terrebonne and Lafourche parishes has taken quite a dip year-to-date.

From January through October, Terrebonne Parish leases were awarded by the state Mineral and Energy Board during only two meetings. For Lafourche, only three meetings have produced private investments this year.

During the same period in 2010, the parishes had leases sold in nine monthly meetings — five for Lafourche, four for Terrebonne. That’s nearly double the count of this year so far.

The data run counter to the geographic trend that’s playing out with the state’s oil-and-gas leases this year.

As of October’s last week, 60 of the state’s leases had been awarded in north Louisiana and 191 in the area of coastal parishes.

The trend became noticeable during the summer when south Louisiana’s rig count, which had fallen and flattened after 2008, more than doubled to roughly 40 running rigs, as compared to July 2009.

Over that same period, the state saw an increase in the number of parishes with active drilling, from 22 parishes to 32, according to Natural Resources Secretary Scott Angelle.

Onshore and off, there are major projects developing in other coastal parishes, like the Northeast Basile Prospect in Evangeline and the Theall Prospect in Vermilion Parish.

Investors are also opening up new projects in St. Mary and Plaquemines parishes.

Though Haynesville Shale drilling activity in north Louisiana has eased off from its 2010 peak, this summer’s rig count was still roughly double what the region averaged in the five years prior to 2008, when leasing and exploration of the play began in earnest, Angelle said.

In other words, it might be quieting down, but it’s still bringing in the big bucks. It’s why Louisiana was recently ranked in the top 10 percent of the most attractive areas for exploration investment in the world, based on a Fraser Institute survey.

“Exploration of the Haynesville Shale has been a tremendous asset for our economy,” Angelle said, “generating more than $320 million in revenue from lease bonuses, royalties and rental payments to state and local governments since 2008, not including taxes and support activity.”

Private investors, however, are not completely ignoring Terrebonne and Lafourche parishes.

In October, Schoeffler Energy Group of Lafayette put up $7,500 for 37 acres below Grand Bayou in Lafourche Parish.

The company is leasing school indemnity lands, property meant to support the local public school system also known as Section 16 land.

The most recent lease awarded in Terrebonne Parish happened in June and involved two nearby inland plots.

Hilcorp Energy, based in Texas, spent $130,000 on more than 470 acres near Terrebonne Bay.

There’s also one other reason why leases spiked in south Louisiana this year.

The board decided to open up parts of Rockefeller Wildlife Refuge, which encompasses 76,000 acres in Cameron and Vermilion parishes, to leasing earlier this year.

Wildlife and Fisheries Secretary Robert Barham said the money will be used to enhance the refuge.

“Now, more than ever, it is important to continue to invest in our natural resources and the rich fish and wildlife populations across our state,” he said. “These mineral lease sales allow us to continue to be the premier destination for America’s sportsmen and women without placing a burden on the state’s taxpayers.”

The refuge has proven to be a valuable commodity for investors. In early October, some roads into the refuge had to be shutdown while Chevron Corp. built a bridge for a new bridge to a well site.

Original Article

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By TED GRIGGS

Advocate business writer
November 01, 2011

Louisiana’s oil and gas industry supports 310,217 jobs and generated more than $16.1 billion in annual household earnings for the state, according to a study released Monday by the Louisiana Mid-Continent Oil and Gas Association.

The survey includes the impact of oil and gas extraction, refining and pipelines.

The study shows that Louisiana is the United States’ No. 1 producer of crude oil, including production from federal waters; No. 2 in petroleum refining capacity; and No. 3 in natural gas production.

“Some people have asked me what if we hadn’t been so lucky as to have all this oil and gas under our state?” economist Loren Scott said at the weekly Press Club luncheon.

“Well, it’s very easy to figure out what we would look like,” Scott said. “All we have to do is look one state to the east. We’d look just like Mississippi.”

Scott said every parish in Louisiana has at least one person working in the oil and gas industry, and Lafayette Parish has close to 15,000.

The industry’s jobs pay well, Scott said. For those in the extraction sector, the average weekly pay is close to $2,000; refinery workers average around $1,750; and pipeline workers around $1,500 a week.

The average weekly pay for a manufacturing job is around $1,100 a week, he said.

The study says the three oil and gas-related industries paid local governments $298 million in taxes in 2009. In addition, the $16.1 billion the industries generated in household earnings added around $707 million indirectly to local governments’ coffers in fiscal year 2010.

Scott said one of the major reasons Mid-Continent commissioned the study was to let people know the importance of the state’s oil and gas industry, which he said is now “very much under attack” by the Obama administration.

One component of the president’s jobs bill called for the putting a $41 billion tax on the industry, Scott said.

The Obama administration has proposed rolling back or repealing eight tax breaks that benefit the oil and gas industry. The administration estimates this would generate $41 billion in taxes over 10 years.

Scott said the exemption for intangible drilling costs, which includes everything but the actual equipment, is vital for independent oil and gas companies.

PetroQuest, Stone Energy and Devon Energy use that exemption to raise capital from investors, and that allows the companies to drill wells, Scott said.

According to investopedia.com, intangible drilling costs account for 65 percent to 80 percent of drilling costs, and the expenses are 100 percent deductible in the year they are incurred.

Other obstacles the industry faces include:

•The U.S. secretary of the interior’s mandate that the industry cap 3,500 nonproducing wells and dismantle 650 platforms in the Gulf, Scott said. It will cost around $3.8 billion to perform what he called a completely unnecessary task.

•Federal drilling permit applications, once less than 100 pages, are now thousands of pages long, and the new regulations enacted in the wake of the BP Macondo well disaster in the Gulf of Mexico are boosting costs.

The rig explosion killed 11 men and dumped more than 4 million barrels of oil into the Gulf. Two federal investigations say BP bears most of the blame for the disaster.

Scott said the U.S. secretary of the interior estimates the new regulations will cost $1.4 million per well. The study also cites a Grant Thornton survey of industry members who estimate the added costs at a much higher level, around 20 percent of drilling costs.

For example, the BP Macondo well cost $100 million to drill; 20 percent of drilling costs would be $20 million.

Scott said the added regulations and the deepwater drilling moratorium pushed 11 drill ships out of the Gulf of Mexico, along with thousands of direct and indirect jobs connected to the ships.

Chris John, president of Louisiana Mid-Continent, said the drilling permit process takes much longer now, in part because the federal agencies overseeing the process lack the manpower needed.

He said he doesn’t expect that to change quickly, whether a Democratic or Republican administration is in place.

It’s likely that the industry will have to pay additional fees to fund those new positions, John said.

Meanwhile, Scott said two very positive developments are under way in two oil-bearing shales in Louisiana: the Tuscaloosa Marine Shale, which crosses the middle of the state; and the Lower Smackover in northwest Louisiana.

Five independent energy firms have leased more than 1 million acres in the Tuscaloosa Marine Shale, which is thought to contain 7 billion barrels of oil, Scott said.

“I don’t think they would have purchased a million acres had it not been that they thought that this was going to work out,” Scott said.

Scott said he has seen one estimate that 30 to 42 rigs would be working next year in the Tuscaloosa Marine Shale. That works out to between 5,400 and 7,200 jobs, he added.

The Haynesville Shale, a natural gas formation, started out in a similar fashion and grew to 143 rigs, he said.

The Lower Smackover, where energy companies are also leasing and drilling, could potentially be very important to northwest Louisiana, Scott said. Activity in the Haynesville, a deep, natural gas-only play, is decreasing as energy companies target less expensive areas and those that also produce more lucrative oil and liquids.

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HOUSTON, Nov. 1 (UPI) — A 270-mile pipeline that will provide producers in the southern United States with access to more natural gas went into service Tuesday, an energy company said.

Enterprise Products Partners announced that its $1.5 billion Acadian Haynesville extension pipeline went into commercial service Tuesday.

The pipeline gives producers in the Haynesville/Bossier shale gas play access to 1.8 billion cubic of natural gas per day. The later addition of a compression system would boost capacity to 2.1 bcf per day, the company said.

The project gives producers access to more than 150 end-use customer service stations located along an industrial corridor along the Mississippi River.

“In addition to providing producers with a timely and flexible solution, the Acadian Haynesville extension has also created benefits for the region, the state and the country by providing jobs, additional tax revenues and more supplies of domestic energy,” said Michael Creel, president and chief executive officer of Enterprise’s general partner, in a statement.

The shale play is situated in roughly 2 million acres in the southern United States. Current production is estimated at more than 7 bcf per day.

Original Article

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By Claire Taylor

The gates to the 2011 Louisiana Gulf Coast Oil Exposition closed at 2 p.m. Thursday and, within hours, many of the pumps, trucks, rigs and other equipment that it took days to bring in had been packed up and moved off the grounds of the Cajundome and Convention Center.

LAGCOE Chairman Lawrence Svendson and company representatives declared the biannual trade show “highly successful,” with at least 13,500 people attending and “lots of commerce” being initiated.

The second-largest oil and gas trade show in the country, LAGCOE is about making contacts, networking, and showing new products and technology to potential customers, Svendson said.

“It’s a place where new technology and solutions to old problems hit the marketplace,” he said.

Roger Waters, chairman of R.A.W. Corporation which manufactures tanks in Broussard, said the company had a wonderful show, with more inquiries than in the past five years.

His team was introducing a new enclosed tank that’s environmentally friendly. Holding tanks used in the field for treatment chemicals are usually set into a secondary open container. The container catches chemicals that spill from the tank, but birds, livestock and other wildlife, thinking the liquid is water, can ingest the chemicals.

R.A.W. built an all-enclosed tank so that spills and chemicals are contained in one piece of equipment.

“Nothing can hit the ground” and wildlife cannot access the liquid to drink it, Waters said.

At the corner of Congress Street and Cajundome Boulevard, below the derrick with the LAGCOE Looey head, 5-foot 2-inch, 120-pound Sarah Phillips single-handedly lifted a large piece of oilfield equipment off the ground and loaded it into the back of a pickup. Phillips, a marketing representative for Ezy-Lift of Houston, demonstrated the Ezy-Lift 2000, an electric hydraulic lift system that can be installed on the back of a pickup truck in about two hours, lifts up to 2,000 pounds and folds back into the bed of the truck all with the push of a few buttons.

“This show has been great for us,” Phillips said Thursday.

Ezy-Lift is only 3-years-old. This was their first time participating in LAGCOE and their exhibit was awarded first place in the Multi Outside Booth category. John Winsauer said company representatives made contact with around 230 people, providing demonstrations and getting contact information. Nearby, representatives of Francis Drilling Fluids of Crowley showed off an 18-wheel truck used to haul drilling fluids. The truck looks like any other but is fueled by liquified natural gas instead of diesel.

“We’re pushing clean natural gas that comes from Louisiana,” Eric Humphries with Francis Drilling Fluids, said.

The truck was manufactured by Peterbuilt Motors and runs very quietly, company rep Ray Paradis said.

“It’s cleaner environmentally and cheaper,” Rickie Menard of Francis Drililng Fluids said.

The biggest issue with it is that there’s no place nearby where the truck can be refueled, Menard said. The closest place to refuel right now is Winny, Texas.

A motorcycle with yellow trim took center stage at a LAGCOE booth for Hydradyne Hydraulics LLC, headquartered in New Orleans. The company sells pumps and motors for oilfield hydraulic applications and applied them to a motorcycle, sales representative Ron Holcomb said.

The motorcycle was designed by Holcomb and built in Houston by someone authorized to build a Department of Transportation frame. The bike utilizes a Harley front-end and muffler.

“Everything else is custom,” Holcomb said. “Custom wheels, custom frame, custom tank.”

The bike has a diesel engine and hydraulic drive. It does not have a transmission, which means no belts and chains, Holcomb said. He’s driven it more than 100 miles and continues to tweak the bike.

“The bike was built to draw attention to the company, and it’s doing its job,” Holcomb said.

Original Article