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Stone Energy Corp. (NYSE: SGY) is spending $67 million in cash to buy some of Anadarko Petroleum Corp.’s (NYSE: APC) working interest in the Gulf of Mexico.

Lafayette, La.-based Stone said May 10 it will acquire The Woodlands-based Anadarko’s 25 percent interest in the Pompano field, as well as other interests in the Mississippi Canyon field.

Net production from Pompano is 1,000 barrels of oil per day and 3 million cubic feet of natural gas, according to a statement from Stone Energy.

Stone is an independent oil and natural gas exploration and production company with offices in Houston.

Anadarko recently announced a plan to increase its capital spending in 2012 by 13 percent to $6.9 billion. Geographically, more than half of its spending will go toward U.S. onshore properties, a quarter will go toward international projects, 10 percent will go toward the Gulf of Mexico, and the remainder will go toward midstream and other work.

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Landowners who have agreed to allow oil or gas drilling on their property should get at least 30 days notice before crews move in to build roads, set up drilling platforms and start drilling, says Sen. Bret Allain, R-Franklin.

The House Natural Resources Committee on Wednesday endorsed his SB535 and sent it to the full House for debate. Allain, who is a sugar cane farmer and land manager, said his bill comes from personal experience. He said he had just planted a new crop when a representative of a drilling operation started putting out markers for a road would be built to a drilling site. The representative said the road and drilling rig would be onsite within four days, and he had no time to make changes.

“If you have a mineral lease, they have the right to extract minerals,” he said. “Just give a man fair notice so he can take care of his business.”

The bill calls for the commissioner of conservation to draw up rules that would call for 30-day notice of when the operation would begin laying down roads and a drilling pad but allows an exception if a lease would run out in less than 30 days.

“Most operators do it,” Allain said. “Some don’t.”

He said the notice would give farmers time to relocate cattle, build new fences and reroute irrigation canals for crops.

Rep. Jim Morris, R-Oil City, who is in the oil and gas extraction business, told Allain, “We as an industry sometimes forget our manners.”

Morris said he wants amendments attached to the bill that would penalize landowners who with “malicious intent” do things that disrupt operations.

He said he had one job where the landowner used equipment to cut deep ruts across the road to the drilling site, piled large pieces of junk on the drilling pad and dumped trash in the drilling pits.

Allain jokingly said the landowner might have been mad because he didn’t receive 30 days notice.

The bill had the support of Don Briggs, president of the Louisiana Oil and Gas Association. He told the committee that the bill deals with “sensitive issues. We’re careful not to tread on areas we shouldn’t and have unintended consequences.”

Allain said he will work with Morris to develop amendments that address his concerns.

“It’s amazing what can happen when we work together, hold hands and sing ‘Kumbaya,’” he said.

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New rankings from Forbes magazine list Lafayette as one of the top American cities in terms of job growth and opportunities.

Lafayette was fourth among all U.S. cities on Forbes’ list of Best Cities for Jobs. Among mid-sized cities, Lafayette ranked first with a 5.2 percent year-over-year employment growth.

Overall, the list was dominated by towns with major energy industries, including several in Texas, Wyoming and North

Dakota.

“These cities’ economies have expanded steadily over the last few years, beneficiaries of a great boom in fossil fuels that, unless derailed by regulators, will continue for the foreseeable future,” the magazine said.

Don Briggs, president of the Louisiana Oil and Gas Association, said he wasn’t surprised Lafayette placed so high on the list.

“One of the things we constantly push is that Louisiana is truly an energy state, and when we think of Lafayette, it doesn’t just serve the energy industry within Louisiana, but they really serve all parts of the world, as well as other states,” Briggs said.

The rankings come during what many consider to be a time of economic prosperity in Lafayette, with several new business openings, company expansions and low unemployment. According to the Louisiana Workforce Commission, a total of 114,221 people were employed in Lafayette in March. The LWC said 5,782 people were unemployed, for an unemployment rate of 4.8 percent, one of the lowest in the country.

“What I’ve said often is these kinds of things don’t happen by accident,” said Lafayette City-Parish President Joey Durel. “I don’t give the government credit for something like this. I give the credit to the community and the leaders.”

Durel said he received positive feedback late last month when several entrepreneurs visited the city for the Cajun CodeFest and INNOV8.

“They said they’ve never been to a place where everybody seemed to be working together so well — local government, the private sector and people from all industries. I think that’s the real key,” Durel said. “We have leadership in all sectors that recognize that we do a whole lot better when we work together than when we don’t.”

To compile the rankings, Forbes used employment data from November 2000 to January 2012 and took into account recent growth trends, mid-term growth, long-term growth and the region’s momentum.

Briggs pointed out that during that time period, more energy service companies, such as ones that manufacture or provide equipment for drilling companies, have been launched in the Lafayette area.

“Years ago, we used to have more geologists and more small oil and gas companies in Lafayette and Louisiana,” he said. “Today, it’s become a major area for the service sector that services oil and gas, both offshore and onshore in the United States.”

Durel said that he is optimistic that the positive economic trends will continue.

“With where energy is now, and what we’ve done with fiber optics and the progressive nature of Lafayette, I just think we are positioning ourselves to diversify a little more and continue to grow,” he said. “I have nothing but optimism about the future of Lafayette.”

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A third horizontal well in the Tuscaloosa Marine Shale by Devon Energy is initially producing more than twice the amount of oil—about 259 barrels per day—than its first two wells produced, says Louisiana Department of Natural Resources Secretary Scott Angelle. “Based on their ongoing drilling activity, and the interest expressed by Devon and other energy exploration companies in the Louisiana TMS on both sides of the Mississippi River, it would seem that the industry is beginning to recognize a very real opportunity here,” Angelle says in a news release.

The latest and highest-producing well Devon has drilled is located in northern East Feliciana Parish. The Oklahoma City-based firm has another in East Feliciana and a third in Tangipahoa Parish. Devon—which last week reported first quarter earnings of $393 million on an oil production increase of 26%—is also drilling two other wells in the Tuscaloosa Shale. One in St. Helena Parish is nearing its target depth, Angelle says, and another in West Feliciana Parish is nearing the point of its turn from vertical to horizontal.

The Tuscaloosa Shale is a 2.7 million-acre stretch of land extending from central Louisiana to southwestern Mississippi that’s believed to hold billions of barrels of oil.

“We know that this formation has vast potential to provide domestic energy for this nation, and jobs and economic growth for this state, but it will take companies time to learn and perfect the most effective means of drawing out the oil and natural gas locked within that shale,” Angelle says.

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Lawsuits against oil and gas companies in Louisiana have taken a toll on the industry and the state’s economy generally. But documents obtained by Scribe suggest plaintiffs’ attorneys in the lawsuits seek out litigation even when they know their claims are baseless.

A presentation (embedded below) given by a major energy consultant recently obtained by Scribe offers a glimpse into the tactics that these firms may use to extract large damages from oil and gas companies in the state.

The presentation offers a primer on how to “locate areas where I may successfully litigate for environmental damages,” and suggests that litigants find areas in the state that have likely been contaminated by naturally-occurring phenomena.

“It’s best to narrow one’s search to southern Louisiana,” the presentation advises, “since much if not all of the salt and hydrocarbon impacted soil could be the result of the salt domes or salt water invasion from the coast.”

The author of the presentation, consultant Bill Griffin, noted while giving the presentation that the salt dome phenomenon is naturally occurring. “But when I find these things,” Griffin says in the video above, “maybe I’m just going to contend that the oil companies did it, not the salt domes.” After all, he added, “it’s tough to name God as a defendant. The oil companies did it.”

Sugar cane farmers in Southern Louisiana have often used the crabgrass killer MSMA, notes another slide in the presentation. MSMA contains a significant amount of arsenic. The suggestion is that damage caused by chemicals used in sugar cane farming can be blamed on oil and gas companies.

The presentation also recommends focusing on Southern Louisiana due to its “rich environment of deep pockets,” including fossil fuel giants Chevron, Shell, BP, and Exxon. It recommends attorneys “insure [sic] at least one deep pocket is on the hook.”

In a conversation with Scribe, Griffin denied ever recommending that plaintiffs adopt this strategy in his consulting work. But his recommendations have been reflected in a plaintiff attorney industry in Louisiana that researchers at Louisiana State University say is wreaking financial havoc on the state and its oil and gas industry – a major driver of economic growth and tax revenue.

Louisiana law allows property owners to sue for “legacy” damages – damages to their property inflicted by oil and gas producers before the current owner acquired the property. If plaintiffs can show that their land was damaged in the course of fossil fuel extraction, they can be entitled to very large awards.

For trial lawyers, “it’s like winning the lottery,” Griffin claimed. Indeed, the cover slide of his presentation is a picture of a lottery ticket.

Act 312, a state law passed in 2006, was designed to ensure that damages awarded in legacy lawsuits actually go towards cleaning up the environmental contamination at issue. It requires the responsible party – in most cases, the oil and gas companies being sued – to deposit money in a court “registry,” from which funds are drawn for cleanup.

But industry representatives say the law left a gaping loophole by allowing trial lawyers to inflate awards by demanding excessive cleanup fees and hoping either that a jury will award proportionally large private damages, or that defendants will settle to avoid costly legal fees.

“We have found a direct link from the cost of the state’s plan and how much the jury awards in private claims,” Don Briggs, president of the Louisiana Oil and Gas Association, told Scribe. Since attorneys draw their fees from the private awards, they have an interest in ensuring that those sums are as high as possible.

In one prominent case, plaintiffs demanded $3.7 billion to clean up an underground aquifer they said was contaminated by salt (note the parallels to Griffin’s presentation) due to oil and gas drilling. Ninety-five percent of that award, they claimed, would go towards transporting contaminated water to a waste disposal site.

But the plaintiff’s attorney admitted under oath that the contaminated water could be dealt with on site for about $1 million – in other words, that there were available methods for remediation that would reduce the necessary damages by 95%. That case was settled under undisclosed terms.

Scott Sinclair, who owns the company that was the target of the lawsuit, would not discuss details of the settlement, but claimed, “the plaintiff’s modus operandi in these cases is to present staggeringly large damage amounts to judges and juries in the hope that such a large potential judgment will scare defendants into settling for much smaller, but still very lucrative, amounts.”

Sinclair says the multiple lawsuits against his company, Tensas Delta Exploration, have brought business to a grinding halt. “You can imagine what it is like for a small business to be under a threat (even the most unlikely threat) of a potential $4 Billion judgment,” he told Scribe. “Lenders don’t expand lines of credit. Investors find other places to put their capital. Industry partners that we regularly did business with stopped calling us. No one wants to be in a deal with a bankrupt partner.”

His experience is hardly unique. The aforementioned LSU study, conducted by David Dismukes, the associate executive director of the school’s Center for Energy Studies, found that legacy lawsuits had reduced Louisiana’s economic output by more than $10 billion, eliminated or prevented more than 30,000 jobs, and reduced wages for workers in Louisiana by more than $1.5 billion.

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In early May, Devon Energy (DVN) became one of few energy companies to miss analyst expectations this earnings season, reporting $1.05 earnings per share in the first quarter. Analysts expected to see earnings per share of $1.44. Devon attributed much of the impact on “unusually wide Canadian oil price differentials”– presumably against the WTI Cushing, Oklahoma cash price– and pointed out that prices were normalizing as of the end of the quarter.

Based on the lower than expected first quarter results, Devon CFO Jeff Agosta indicated that shareholders could expect profits in the next quarter to arrive $50 million below previous guidance, though he also pointed out that the company expects to meet its goal of raising liquid hydrocarbon output to 40% of the company’s total output. This is inline with moves by other companies, including Anadarko (APC) and Cabot Oil & Gas (COG), moving to diversify into liquids based on weak gas prices stateside. Though Devon’s output is not currently 40% in liquid hydrocarbons, its total proved reserves are– with 1.26 bboe of its reserves in liquids– so I expect it to be able to meet its target.

Strong Margins on Strong Unconventional Plays

Devon’s unexpected earnings results are more a product of the current pricing environment than a reflection of Devon’s operations. At last report, Devon had a unit cash margin of 177% per barrel, excluding hedges. Shortly after its earnings report, Devon CEO John Richels indicated that Devon is open to developing joint partnerships to share the risks of development. Given its strong history of successful joint ventures and healthy balance sheet, I don’t believe that Devon will have a problem acquiring partners where needed.

Devon’s recent joint venture with Sinopec Shanghai Petrochemical (SHI) netted it significant acreage in five different plays, including the Mississippian in Texas, the Rockies Oil shale in Colorado and Wyoming, the Utica in Ohio and Michigan, and the Tuscaloosa marine shale on the border of Louisiana and Mississippi. Devon expects to drill or participate in 125 wells through 2012 as a result of the joint venture. In addition to this, Devon is beginning exploration activities on the Cline shale in the Permian basin, with 500,000 acres closed and committed and plans to drill 15 wells in 2012.

Out of these plays, I think the Utica and the Permian represent the best opportunities for Devon. Competitor Chesapeake Energy (CHK) recently announced that its 1.25 million net acres on the Utica could represent $15 to $20 billion of reserves to the company at today’s prices based on previously unsuspected liquids-rich formations in the areas of the shale underlying Ohio. Though Devon’s leases here have a considerably smaller net acreage, at 157,000 acres (235,000 including Sinopec’s interest), there is still the potential for Devon to expand the play. Even if it does not, Devon has a good position with these acres, located as they are above the Utica-Point Pleasant play.

The Ohio Department of National Resources Division of Geological Survey is not hesitating to encourage energy companies to invest in Ohio’s natural resources. The ODNR indicates that fracking could be very effective in areas near the Point Pleasant play, and that the area of the play extending to the northwest shows signs of being oil rich. This western part of the play is where Devon is setting up, in an area that roughly overlaps explorations by Royal Dutch Shell (RDS.A), Chesapeake, and Anadarko. Occidental Petroleum (OXY) is also exploring the Utica, though further east, with 229,000 acres in West Virginia above the Marcellus and Utica shales.

The ODNR’s most recent data map indicates that Devon already has three permitted wells and one drilling well in its Ohioan acreage. The heavy presence of mid- and large-cap energy players in this area speaks to the promise of these plays, and the companies’ belief that the ODNR is not exaggerating the potential, and point to the likelihood of Devon further increasing its activities in this area.

The second area of focus for Devon, the Cline shale in the Permian basin, could produce 3.6 mboe for Devon according to its estimates. Devon is seeking a partner for this play to share in development costs and provide cash up front. In this play Devon is competing against Laredo Petroleum Holdings (LPI), which focuses primarily on this area, as well as Range Resources (RRC), and Pioneer Natural Resources (PXD). In its first quarter earnings report Devon announced a 32% increase in oil production from the Permian over the first quarter of 2011.

Outlook

According to the U.S. Energy Information Administration, inventories of natural gas have increased 56% over the past twelve months, indicating a severe oversupply. Devon is moving to protect itself from these low prices, which look to be headed even lower, but it might not be moving fast enough. In order to prevent a complete glut, energy companies are actively shutting down wells but production remains near record highs. This is a boon to consumers but could be a disaster in the making for energy stocks.

After its disappointing earnings, Devon is trading 3% lower around $68 per share, with a forward price to earnings of 9.4 and a price to book of 1.3. Anadarko is also trading down at $73 per share, albeit keeping a high forward price to earnings of 14.2 and a price to book of 1.8. Occidental is trading around $93 with a forward price to earnings of 9.8 and a price to book of 2.0. Chesapeake is currently trading around $17 with a forward price to earnings of 6.2 and a price to book of 0.8. Range Resources is trading around $65 with an astronomical forward price to earnings of 42.5 and a price to book of 4.4 on above average volumes, indicating Range Resources is currently oversold.

Devon’s strong dividend may help offset shareholder disappointment over the latest earnings report, as it currently stands at 1.1%, an 800% increase since 2004, though still tracking below the industry average of 1.5%. I think that Devon is conservatively risking its unconventional plays, and these could contribute revenues far above expectations when the plays are brought into production and U.S. gas prices stabilize closer to normal levels.

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U.S. Sen. David Vitter, R-La., forwarded to his supporters Friday an article from Legal Newsline, a Chicago newswire owned by the U.S. Chamber Institute for Legal Reform. The group contends Louisiana’s judicial system is unfair to businesses, therefore state law should be changed to make it more difficult for injured parties to file and litigate lawsuits.

Vitter described himself in his news release as having “harshly criticized (Gov. Bobby) Jindal for not providing leadership in the high-stakes legacy lawsuit issue.”

Generally, Senate Bill 760, by state Sen. Bret Allain II, R-Franklin, is considered the measure supported by landowners seeking the cleanup of environmental damage caused years ago when energy companies extracted oil and natural gas from their property.

Landowners claim the lawsuits are necessary to push industry to clean the environmental damage.

House Bill 618, sponsored state Rep. Neil Abramson, D-New Orleans, is thought of as the oil company’s solution to make “legacy lawsuits” more predictable and less likely. The industry argues that the lawsuits open the door to court judgments that cost additional millions for damages not directly related to the actual cleanup of the property, and that stifle job-producing energy exploration.

The Legal Newsline article quotes Don Briggs, president of the Louisiana Oil and Gas Association, criticizing state Senate President John Alario, R-Westwego, for failing to assign HB618 to a committee for a hearing. The oil industry prefers that the bill be heard in the Senate Judiciary A committee, which handles civil law and procedures, rather than the Senate Natural Resources committee, which advanced SB760.

Also, on Friday, Lisa Rickard, the president of U.S. Chamber Institute for Legal Reform, released her letter to Alario and state Sen. Ben Nevers, D-Bogalusa and chair of Judiciary A, asking that Senate Bill 443, the companion to HB618, be heard on May 8.

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A bill supported by the oil and gas industry that would change the way legacy lawsuits are handled is being “held hostage,” according to one of its staunchest supporters.

“(A) similar bill was already assigned to Judiciary A, so rightly it should go there,” said Don Briggs, President of the Louisiana Oil and Gas Association. “However, they have been saying that it was going to go to the Senate Natural Resources Committee and die very quickly.”

HB618, sponsored by Rep. Neil Abramson, D-New Orleans, passed the House and moved to the Senate on April 26, but it has yet to be assigned to a committee.

“The debate is will it go to Natural Resources or will it go to Judiciary A, or where it should go?” said Briggs.

The issue pits landowners and trial attorneys against the oil and gas industry over how cleanup of environmental damage from oil drilling years ago should be handled.

Senate President John Alario, R-Westwego, is in charge of committee assignments.

Alario, who was Governor Bobby Jindal’s pick for Senate President, was a Democrat until changing his party affiliation in 2010. Alario formerly served as the state’s Speaker of the House for two terms under Democrat Governor Edwin Edwards who was recently released from prison. (Edwards was sentenced to 10 years in prison on racketeering charges in 2001).

Briggs said part of the reason for the hold-up has been renewed talks of compromise, but the end is still not yet in sight.

“They are trying to see if they can make something like that work so maybe they are going to hold it there until that happens,” he said. “We have been negotiating for a very long time and consequently we are always very hopeful something can happen.”

Sen. Bret Allain, R-Franklin, passed a competing measure out of the Senate Natural Resources Committee last week. The bill, now know as SB760, was seen as a last minute attempt by landowners to combat the successful HB618.

U.S. Sen. David Vitter, who has harshly criticized Jindal for not providing leadership in the high stakes legacy lawsuit issue, lashed out over tactics that may derail HB618.

“I’ve urged the Governor and members of both bodies to support Rep. Abramson’s bill, and not allow them to do the trial lawyer’s dirty work by running out the session clock, or worse yet, by passing other provisions that actually expand the lawsuit bonanza – like Sen. Allain’s bill,” Vitter said.

“For instance, Allain’s bill doesn’t affect the more than 250 existing lawsuits.”

Briggs said Allain’s bill, SB760, is not salvageable and should a compromise be struck, a new bill that includes the reforms of HB618 would have to be drafted.

“It can be put into a compromise bill, but as far as taking HB618 and changing the language and changing the purpose of it is non-negotiable,” Briggs said. “[Allain's bill] is totally unacceptable. It doesn’t even catch all the current lawsuits.”

If any reform is to occur it must happen before session adjourns on June 4.

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