McMoRan Exploration Co. plans to flow-test its Davy Jones-1 ultradeep discovery well on the Gulf of Mexico shelf as soon as it recovers a fish lost in the hole as it prepared to run production tubulars.

Installation of the central processing facility, production platform for discovery well, and sales pipelines are substantially complete. The production tree, blowout preventer, and safety valve, rated for pressures of 25,000 psi, are available for installation.

“A successful flow test would have important implications on potential future reserve additions at Davy Jones and McMoRan’s other ultradeep prospects,” the company said. Production could be established shortly after a successful flow test, McMoRan said.

McMoRan has drilled two successful subsalt wells at Davy Jones. The Davy Jones-1 well on South Marsh Island Block 230 logged 200 net ft of pay in multiple Wilcox sands, all of which were full to base. The Davy Jones-2 appraisal well 2.5 miles southwest confirmed 120 net ft of pay in multiple Wilcox sands, indicating continuity across the major structural features of the prospect, and also encountered 192 net ft of potential hydrocarbons in the Tuscaloosa and Lower Cretaceous carbonate sections.

McMoRan expects to complete and flow test both wells in 2012.

McMoRan spudded the Blackbeard East ultradeep exploration bypass well on Aug. 25, 2011, at 30,630 ft. Permitted to 34,000 ft, the bypass well has been drilled to 33,400 ft true vertical depth, 33,882 ft measured depth, and is being logged in the section below 30,800 ft.

Wireline logs indicated that Blackbeard East encountered hydrocarbon-bearing sands in the Oligocene Frio with good porosity below 30,000 ft. The well previously encountered 178 net ft of hydrocarbons in Miocene sands above 25,000 ft.

Pressure and temperature data below the salt weld between 19,500 ft and 24,600 ft at Blackbeard East indicate that a completion at these depths could utilize conventional equipment and technologies, McMoRan said. Blackbeard East is in 80 ft of water on South Timbalier Block 144.

The Lafitte exploratory well in 140 ft of water on Eugene Island Block 223 was spudded on Oct. 3, 2010, and is drilling below 32,200 ft. Recent wireline logs have indicated hydrocarbon bearing sands in Frio below 30,000 ft.

This is the second hydrocarbon bearing Frio sand section encountered either on the GOM shelf or in the deepwater offshore Louisiana. The other is below 30,000 ft in the Blackbeard East well 80 miles east. McMoRan is considering more drilling opportunities on the Lafitte structure to evaluate this section further.

As previously reported, wireline logs from interim logging operations have indicated 171 net ft of possible productive sands in the Lafitte well, including 56 net ft of hydrocarbon bearing sand over a 58- ft gross interval in the Cris-R section of the Lower Miocene with good porosity. Flow testing will be required to confirm the ultimate hydrocarbon flow rates from this zone, which was full to base.

Possible productive thicknesses from the Frio sand section could be added after drilling and logging are completed. McMoRan controls 15,000 gross acres in the immediate area of Lafitte. These results enhance the potential of McMoRan’s other acreage in the Lafitte strategic area, including McMoRan’s Barataria and Captain Blood ultradeep prospects. Barataria covers 10,000 gross acres west-southwest of Lafitte, and Captain Blood takes in 10,000 gross acres south of Lafitte.

McMoRan will deepen the Lafitte well to 33,000 ft to evaluate additional Oligocene objectives. Lafitte is McMoRan’s third ultradeep prospect to encounter Miocene age sands below the salt weld on the gulf shelf.

The Blackbeard West-2 exploratory well, spudded Nov. 25, 2011, is drilling below 11,700 ft towards a proposed 26,000 ft. On Ship Shoal Block 188 in the Blackbeard West unit, it targets Miocene-aged sands seen below the salt weld 13 miles east at Blackbeard East.

Meanwhile, Chevron USA Inc. has spudded the Lineham Creek exploratory prospect onshore in Cameron Parish, La., targeting Eocene and Paleocene objectives below the salt weld. Operations commenced on Dec. 31, 2011, and the initial exploratory well has a proposed total depth of 29,000 ft. Interests are Chevron 50%, McMoRan 36%, Energy XXI (Bermuda) Ltd. 9%, and W.A. “Tex” Moncrief Jr. 5.0%.

Original Article

Hydraulic fracking is a method of getting gas out of the ground that’s stirring controversy in Beauregard and Vernon Parishes.  Lately there are questions about whether fracking or similar activity may cause earthquakes.

On New Year’s Eve there was an earthquake in Youngstown, Ohio– and some wonder if deep well injection of wastewater in the area may have triggered the quake and others.

The New Year’s Eve earthquake registered 4.0 the Richter scale.  Damage was minimal, but it left many wondering if the quake and ten others were trigger by an injection well used for wastewater disposal. Officials in Ohio say the well holds fluids from hydraulic fracturing-a process that creates wastewater in need of disposal.

Over the past two years there have been 11 earthquakes near the well, but some think the state should shut down the drilling. Says Brian Rothenberg with a group called ProgressOhio, “At this point, you need a moratorium, basically, until we know what to do here. Because quite frankly, we didn’t have earthquakes in Youngstown.We have earthquakes in Youngstown now.”

Those who have been sounding the alarm against fracking in Beauregard and Vernon Parish think it makes sense that injecting fluids into the sub-surface would influence seismic activity. Says Bonnie McElroy, “They force this toxic wastewater down under pressure and if there are fault lines in the area, it certainly stands to reason that it could cause an earthquake.”

Micah Pruitt is also a concerned citizen from Beauregard Parish.  “What’s happening, if you just picture in your mind, we’re shoving, we’re pressurizing the earth in areas that are sensitive to fault lines. So, we’re encouraging these fault lines to slip and that’s exactly what’s happening.”

But Don Briggs with the Louisiana Oil and Gas association says the disposal well in Ohio has nothing to do with hydraulic fracking and that either kind of well would cause an earthquake. “All the true experts including with EPA and other federal agencies say there’s no correlation between disposal wells and the earthquakes at all.”

Briggs quotes a scientist with U.S. Geological survey saying, “Fracking itself probably does not put enough energy into the ground to trigger an earthquake. They’re not a safety hazard he said.”

Apparently the well at issue in Ohio has been shut down pending further investigation. In Ohio they’re said to have 177 such wells none of which have been connected to seismic activity.

Original Article

Louisiana made the “watch list” in a national association’s 2011 report on “judicial hellholes” because of the state’s so-called legacy lawsuits.

The suits allow property owners to sue oil companies that pollute their land.

Landowners who have leased property to an oil company may file suit in their parish to pay for environmental remediation measures. The hellholes report calls the practice a “cottage industry” that has “brought onshore energy exploration and production to its knees in Louisiana,” adding that “cagey bayou plaintiffs’ lawyers often manage, with blessings from both parish and appellate judges, to use the law unfairly for their own gain.”

For the report, the American Tort Reform Association compiled feedback from about 7,000 businesses, complaints reported through the group’s website and a survey of its membership of 300 industry groups interested in changing the civil justice system to prevent frivolous lawsuits, according to association spokesman Darren McKinney.

“We’re offering our analysis and our opinion, but the facts are the facts,” said McKinney. “We’re not making stuff up. In terms of legacy lawsuits, we’ve been hearing this from Louisianians for years.”

But local environmental lawyers say the lawsuits are necessary. Houma attorney Michael St. Martin said oil production in coastal parishes such as Terrebonne and Lafourche has resulted not only in contamination, but saltwater intrusion as well.

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“The marshes and swamps are so fragile that the damage that’s been done is going to be very hard to remediate, if it’s even possible,” St. Martin said. “In my view, the best way to attack the issue is to sue them, to make them clean up and restore the land.”

J. Michael Veron called the tort association report “a gross insult to our judges without any basis whatsoever.” The Lake Charles attorney represented the plaintiffs in Corbello v. Iowa Production, a landmark state Supreme Court case, which mandated that Shell Oil pay millions of dollars to restore property it had leased and to cover attorney’s fees.

Veron said that such lawsuits were necessary to hold companies accountable for pollution because state regulators at the Louisiana Department of Natural Resources are underfunded and bound by a conflicted mission statement.

“The situation is so bad because our Department of Natural Resources has to protect the very group they’re supposed to regulate,” he said, citing a recent Environmental Protection Agency report that ranked Louisiana among the worst states at enforcing federal clean air, clean water and hazardous waste laws. “The only way you’re going to regulate is to let landowners sue for contamination.”

Legacy lawsuits were debated in the last state legislative session, when industry groups lobbied to make the litigation fall under the jurisdiction of the Office of Conservation, rather than allowing suits to be filed in small parish courts. The bill would have also mandated that all settlements involve a state-approved and directed clean-up plan. Under the bill, the money won in lawsuits and settlements would go directly to the state’s Oilfield Site Restoration Fund, which exists for orphaned well remediation.

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That measure appealed to industry advocates, who worry that settlement money goes into lawyers’ wallets and not polluted lands. The legislation also included a provision that prevented companies from being held liable for private claims if they agreed to clean up lands they’d leased.

Don Briggs, president of the Louisiana Oil and Gas Association, has vowed to push new legislation this year. He said the liability portion of the bill was essential, because it would speed up environmental settlements if companies could pay for remediation without worrying about being held liable for other claims. He used the hypothetical example of paying to clean up land without being held liable if the cows that graze on it don’t produce milk.

“The trial lawyers sue everybody in the chain of title, and 99 percent of them had nothing to do with the environmental damage. Each of those companies will try to settle, but they want to admit responsibility for cleanup, not liability,” he said. “This does not stop the landowner from filing any private claims that they have. We’re not taking their rights away. All we’re trying to do is have a process so we can go in and clean up the property.”

Briggs added that while the Office of Conservation falls under the Department of Natural Resources, it has its own commissioner, and is autonomous from the state’s mineral resources promotion arm.

Don Carmouche, a Baton Rouge attorney whose firm, Talbot, Carmouche and Marcello, is called out in the report as being responsible for more than half of the legacy lawsuits filed in the state, says a 2006 bill passed after the Corbello decision mandates the money won in legacy lawsuits be used for remediation purposes.

“Their claim that it’s going to stop drilling or its going to hurt oil and gas in the state is ridiculous. The permits granted in the state have gone up and up,” he said.

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The state issued 935 onshore permits in 2002, prior to the Corbello decision. In 2005, before the law was amended, 1,922 onshore permits were granted, according to data from the state Natural Resources department. This suggests that onshore energy exploration and production has not exactly been “brought to its knees” in Louisiana, according to Veron.

Local industry advocates argue that the suits hurt smaller oil companies, since they have inherited many of these sites from big-name oil producers that have since gone offshore. And according to Louisiana Lawsuit Abuse Watch, more than 1,000 companies that drill onshore in Louisiana have been hit with legacy lawsuits, and they produce more than half the state’s onshore crude.

“Judges and trial lawyers have an interest in maintaining the status quo, but they are dissuading companies and employers from doing business in their area,” said McKinney. “If we educate the public about these shenanigans, maybe they can lobby their public officials to make the laws more equitable and in turn improve economic circumstances for people in that area.”

Original Article

Two articles on your editorial pages on Dec. 26 — an Advocate editorial, “Wells a bust for the state,” and an Associated Press writer’s column, “Analysis: Tax break hurts state coffers” — claim the Haynesville Shale activity did not help the state budget because production wells are exempt from severance taxes until the cost of the well is covered or two years, whichever comes first. Actually, our work suggests that revenue to the state coffers would actually decline if this incentive were repealed.

Your editorial and the Associated Press column focused only on the severance tax effect on the budget, not the total effect. Our analysis estimates that in 2010 the state gave up $125.3 million in severance taxes but gained $367.7 million in other taxes due to income, sales, gasoline and other taxes collected on the massive economic activity the Haynesville brought to Louisiana.

Can we have both — the severances taxes and the other taxes? No, because (1) ours is not the only shale play in the United States, and (2) it is the most expensive in the United States. A Haynesville Shale well costs $9 million-$9.7 million to drill, compared with $5.8million-$6.4 million in the Marcellus Shale and $6 million in the Eagle Ford. The Haynesville is “dry” (it produces only natural gas and no oil), whereas the Eagle Ford and Marcellus are “wet” plays. The drilling success rate is about the same across all the plays. The result? Credit Suisse estimates the rate of return on investment in the wet Eagle Ford and Marcellus is 34 percent, while the Haynesville is the lowest in the country at 15.9 percent.

Given these comparative return numbers, Louisiana cannot afford to remove the horizontal exemption and make Louisiana even less competitive. Indeed, the rig count in north Louisiana has already dropped from 140 in April 2009 to 84 in October 2011, a 40 percent decline. Rig counts in the Eagle Ford and Marcellus continue to rise, to no small extent due to in-migration of rigs from Louisiana. Removing the horizontal exemption would only hasten this exodus.

The Jindal administration and the Legislature knew about this research and wisely, I think, left the horizontal exemption in place.

Loren Scott

economist

Baton Rouge

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Elsewhere in this issue, we’ve told you about the stories we think will make news in Acadiana in the year that begins with great promise today. We’re a local newspaper, so those stories focus on events that happen here at home. Now and again, it’s also good to think about the way that news from beyond the borders of Louisiana and the even beyond the United States could come home:

» Oil prices. While Louisiana’s economy has diversified over the 30 years since the 1980s oil glut, many of our jobs and a substantial piece of state revenue continue to rely on how much a barrel of petroleum brings. We’ve seen how horizontal drilling and hydraulic fracturing have greatly increased domestic natural gas production, and how the price has been pushed down to levels near $3. Now that Gulf deepwater exploration is recovering and the new techniques are opening new inland areas to crude production, could the same thing happen to the price of oil? Don Briggs of the Louisiana Oil & Gas Association doesn’t think so. Briggs makes the point that while domestic natural gas goes largely for domestic consumption, the price of oil is set by a world market. And that means U.S. energy companies can increase their production substantially without cutting their own throats.

» The presidential election. Today’s story mention’s the probability that Louisiana will go against President Barack Obama. Nationally, things aren’t as clear. Despite continuing high unemployment and sub-50 approval ratings for Obama, the Republicans have yet to settle on a presidential candidate or a clear message. The leading contenders, Mitt Romney and Newt Gingrich, have each been spurned by their party in the past. The outcome of the election seems destined to make a big impact on health care, energy regulation, tax policy and more.

» China’s economy. Officials in the Chinese government are warning of a slowdown in economic growth that has been like a wildfire for 30 years. The weakness has been linked to shifts in demographics and shifts in labor supply. That could be bad news for Louisiana, which ranks seventh among U.S. states in exports ($27.4 billion), and for which China has been the leading export market this year ($4 billion through the third quarter, up 45 percent over 2010). It would be worse if China’s economy drags down regional partners and competitors such as Japan ($2.8 billion from Louisiana through three quarters), Singapore ($1.7 billion) and Korea ($1.6 billion).

» European debt. There is still fear that massive debt problems in Greece, Italy and other members of the European market could dampen growth in the rest of the industrialized world, perhaps even pushing the United States back into recession.

» The Arab spring. For the first time since the rise of Nasser after World War II, there is at least a chance of widespread reform in the Middle East. Solutions to longstanding problems there could make it less likely that thousands of Louisiana troops could again be called to action in wars in western or central Asia.

Original Article