_

Over-reaching by federal regulators and local governments could stop the Tuscaloosa Marine Shale from ever booming in Louisiana and shift drilling activity to the Mississippi side of the oil-rich formation, Louisiana Oil and Gas Association Vice President Gifford Briggs said Thursday.

The Environmental Protection Agency has been trying to take control of the hydraulic fracturing permitting process from state governments for a long time, Briggs said.

The energy industry fears that any allegation of a problem could result in an instant ban on hydraulic fracturing, the same way that federal regulators placed a moratorium on offshore drilling after the BP well disaster.

“That would give the federal government the ability to shut down the oil and gas industry in the state with the swipe of a pen,” Briggs said. “That is very terrifying, and that is a very real concern that industry has.”

Briggs spoke at the Greater Baton Rouge Industrial Alliance’s annual meeting.

Most wells are drilled using hydraulic fracturing, where millions of gallons of water, mixed with sand and chemicals, are forced underground under high pressure to crack rock formations and release natural gas or oil. Environmentalists and some residents say the practice could contaminate surface water and water tables. There are also concerns about the enormous amount of water used in the process — a Colorado State University study found the average horizontal well in that state used 2.7 million gallons of water — and the effects of disposing wastewater from fracking.

Briggs said federal regulation would likely increase the time and the cost involved in drilling a well.

Meanwhile, Louisiana’s continuing budget shortfalls could mean the end for the severance tax break that drillers get for horizontal wells, Briggs said.

In 1994, Louisiana made horizontal wells exempt from severance taxes until a company recovers the cost of the well or for 24 months, whichever happens first.

At the time, the technology was fairly new, and legislators were trying to encourage drilling. In 2010 and 2011, the exemption meant that Louisiana didn’t collect around $300 million in severance taxes.

The energy industry says it creates billions of dollars in economic activity and investment, which generates tax dollars in other ways.

The Haynesville Shale, for example, had $31 billion in economic impact during the past two years, creating more than 60,000 jobs, Briggs said.

Briggs said he expects the tax break will be the No. 1 target in the next legislative session, even though Louisiana’s economy is heavily dependent on the oil and gas industry.

Drilling is already practically impossible in the Haynesville Shale, due to depressed natural gas prices, Briggs said. Without that incentive, the cost of drilling goes up incredibly, making it even less likely that drilling will take place, and the same goes for the Tuscaloosa Marine Shale.

Finally, drilling companies face problems at the local government level, Briggs said.

Once the Haynesville Shale got going, every local government wanted to create its own well permits, fees, road-use taxes and everything else to capitalize on the boom, Briggs said.

“And I’m sure those parishes in the Baton Rouge area, when they looked at what was going on, they said, ‘Well if we can just get that kind of activity and that kind of economic growth in our area we would do anything,’ ” Briggs said. “Well the Tuscaloosa shows up, and now all of a sudden we’ve got local ordinance issues in every parish that we’ve never had before.”

The local issues vary wildly, Briggs said.

In Beauregard and Vernon parishes, there were efforts to ban hydraulic fracturing. Other local governments have asked drillers to disclose the chemicals used in hydraulic fracturing, he said.

Many of the proposed ordinances duplicate state regulations, while others would make drilling companies repair road damage; the industry is willing to pay for repairs, but oil and gas companies don’t have expertise in road repair.

Briggs said all of these challenges could mean that the much-anticipated Tuscaloosa Marine Shale boom might never materialize.

Drilling companies have an option, he said. They can just move their operations to the Mississippi side of the formation.

original article

_

The 90-day 2012 Louisiana legislative session has come to a close. While most sessions have their ups and downs, this particular session was an all-out battle for the oil and gas industry. Several pieces of legislation were filed that would have been injurious to the industry, and numerous other bills were filed that would benefit the industry and offer new ideas of how to better the future of oil and gas in Louisiana. Overall, the bad bills were killed and the good bills were passed, and the oil and gas industry is pleased at the outcome.

Specifically, the oil and gas industry was able to work with the necessary legislators and stakeholders to pass two bills designed to reduce the backlog of the so-called “legacy lawsuits” and speed up remediation of landowners’ properties. House Bill 618 by Rep. Neal Abramson and Senate Bill 555 by Sen. Robert Adley have now passed out of both chambers and are on their way to the governor’s desk for his signature. State Representative Gordon Dove (R-Houma) was recently quoted in reference to the new legislation as saying, “It allows oil companies to take responsibility for the environmental portion of the site only, clean it up and have that admissible in court.” The Legacy issue has caused, according to a report released by the LSU Center for Energy Studies, the loss of nearly 1,200 new wells in Louisiana, translating to an astonishing $6.8 billion dollars in lost drilling investments, and the forfeiture of over 30,000 jobs.

Also an ultra-deep units bill, HB 504, passed allowing the Department of Natural Resources to consolidate leased lands so operational costs for ultra-deep drilling exceeding 22,000 feet could be shared. This bill enhances drilling in the southern portion of the state of Louisiana allowing for new economic development to take place. Not only will this bill help bring about new jobs directly tied to the drilling itself, but it creates a ripple effect for that region adding jobs to industries such as the hotel, restaurant and transportation sectors.

Other positive pieces of legislation were passed pertaining to hydraulic fracturing, water usage, coastal restoration and alternative fuel for vehicles. Individually, these bills each touch the process of how oil and gas companies conduct their day-to-day activities. If

regulations are set at appropriate levels, the oil and gas industry is able to focus on exploration and production and not be bogged down by the red tape of laws that only hinder operations. When the industry is able to work with the legislators and come to peaceful compromise, we get the opportunity to see our democracy at work.

While this session brought about countless conversations, negotiations, and compromise, the end result was positive for the oil and gas industry.

The next step in the process is for the necessary bills to be signed into law, and the industry move forward in a positive direction, not only for oil and gas, but also for the entire state of Louisiana.

Don Briggs is president of the Louisiana Oil and Gas Association (LOGA).

original article

_

Cheniere Energy (LNG) has a great head start to become the first natural gas exporter in the United States. The company has everything in place with the majority of the permits and financing, now it has a clear trajectory to completing the building of its export facilities. While Cheniere bears have their valid points, the recent pullback of LNG may have created a buying opportunity.

Several articles have come out recently on the topic of the glut of natural gas in the United States and the growth of use worldwide.

This article discusses Exxon Mobile’s (XOM) desire to export natural gas, but the Department of Energy (DOE) won’t approve any more export applications until a study assessing the impact of LNG exports is completed. This is great for Cheniere Energy since it so far has the only approved natural gas export project in the US. Once Cheniere is ready to ship natural gas by 2015 or 2016, it will temporarily have a monopoly on US natural gas exportation. The first DOE study, released in January, found that significant levels of LNG exports could lead to a spike in US wellhead gas prices. The second study won’t come out until the end of summer. These delays have given Cheniere at least a one year lead over competing projects.

The International Energy Agency (IEA) expects total US gas production to rise from 653 billion cubic meters (BCM) in 2011 to 769 bcm in 2017. This excess supply will keep natural gas prices low in the United States which is necessary to keep exporting profitable.

The IEA predicts that natural gas consumption may rise 17% by 2017 from 2011 as demand surges in Asia and the US. Gas demand is projected to rise in Europe over last year as well.

This article, written a couple weeks ago and doesn’t even mention Cheniere Energy, says: “In this strange tale of two markets for the same commodity, North America’s rising natural gas production and lack of export infrastructure could ensure that its overflowing supply continues to sell for an astonishing discount to Asian prices for a few more years.”

This article comments on May 2012 Asian natural gas prices: “Spot Asian LNG prices have this month hit a four-year high of $18 per million British thermal units, up more than 35 per cent over the past year.” Compare this to US natural gas prices that are only around $2.50 per MMBtu.

In the years ahead, the United States will be dealing with austerity measures in paying off its massive debt. By holding growth back with the austerity, natural gas prices in the United States will be kept in check. The United States fiscal challenges make natural gas exportation all the more important.

Cheniere’s commercial contracts are similar to “take-or-pay”. Cheniere receives a tariff whether or not its customers fully use its liquification or regasification facilities. This is one advantage that comes with being the first mover. Even if competitors arrive afterwards that give customers a better deal, Cheniere will have already locked in its customers for the next 20 years. Cheniere already has such contracts in place in its import terminal with Chevron and Total.

Another question is whether Cheniere energy can charge the same fees to liquify the gas, regardless of whether natural gas rates decrease abroad. Perhaps Cheniere can continue charging its same fees despite the changes in natural gas prices worldwide. On the other hand, perhaps natural gas exporters will demand Cheniere reduce its rates if they are taking a hit in profits.

Sabine Pass LNG Terminal

Sabine Pass is located in Cameron Pass, Louisiana. It’s Cheniere Energy Partners (CQP) major project that has LNG storage capacity of approximately 16.9 Bcf (billions of cubic feet) of gas. It has an import terminal for regasification, and is now building an export terminal, Sabine Pass Liquefaction.

Sabine Pass LNG

Sabine Pass LNG is a regasification terminal that takes in approximately $250 million in revenue per year from importing natural gas from Chevron and Total. Total is obligated to make payments of approximately $125 million per year for 20 years starting in 2009. Chevron has a similar deal of approximately $125 per year in obligatory payments.

Sabine Pass LNG is operating at half its capacity. However, due to the oversupply of natural gas in the United States, it’s unlikely the Company will receive any more import revenue. For the same reason, these contracts with Chevron and Total expire in 2029 and most likely won’t get renewed.

Sabine Pass Liquefication

Sabine Pass Liquefication is designed for up to four LNG trains, each with a capacity of approximately 4.5 mtpa (million tons per annum). These trains liquefy the natural gas that comes to the Sabine Pass LNG receiving terminal which is located in Louisiana. The trains then transfer the gas to the receiving export ships. Trains 1&2 will be ready for operation in 2015 or 2016, and trains 3&4 will be ready by 2017 or 2018.

Louisiana is a good location for this terminal. It’s close to five natural gas fields, including Barnett and Haynesville shales – the two largest gas fields in the US which combined produce ~11 Bcf per day. It’s a good location to deliver natural gas to Europe. The only issue I see with the location is it’s quite a bit farther distance from Asia than Australia. Australia is the world’s largest LNG supermarket, and is expected to triple natural gas production over the next decade, as it says in this article. Asia can ship gas from Australia for lower shipping costs. However, the demand still seems to be big enough in Asia that Sabine Pass will export at its full capacity.

Cash Flow Analysis

While Cheniere Energy will have billions in revenues once it’s online, the question is whether it will be able to overcome its massive debt that it will have after its four modular LNG trains are built. A discounted cash flow analysis is needed to determine an appropriate value.

Everything has gone smoothly and it’s all turn key now, so it’s fairly straightforward to apply a discounted cash flow analysis to figure out roughly what the company is worth, although still complicated. Using the Company’s Corporate Presentation released on 5/29/12 is a useful initial guide. On page 3, it estimates EBITDA for Sabine Pass to be $2.8 billion for 2017. While that might be an overly optimistic forecast, if it’s accurate, it will be well more than enough to cover the debt and the stock is undervalued.

Disclosure: I am long LNG.

original article

_

Exxon Mobil Corp. (XOM) (XOM), the world’s biggest energy company, and Royal Dutch Shell Plc (RDSA) said a U.S.- led transformation of the natural-gas market will boost the global economy even as oil becomes more expensive.

“Natural gas is quickly becoming a key enabler of economic growth and environmental progress around the world,” Rex W. Tillerson, chief executive officer of Exxon, said at a conference today in Kuala Lumpur. “We are living at a historic moment in the evolution of energy markets. How we respond will shape the quality of life for generations to come.”

A shale boom in the U.S. has helped it surpass Russia as the world’s biggest producer of natural gas and brought the country close to energy independence. Gas is poised to overtake coal as the second-most widely used source of energy worldwide by 2025, with demand in Asia projected to grow by more than 50 percent over the next three decades, Tillerson said.

Reserves of gas, a cleaner-burning fuel, are helping rebuild the U.S. economy and enabling China to replace more- polluting coal, Peter Voser, Shell’s chief executive office, said in a separate speech at the World Gas Conference in the Malaysian capital today.

U.S. gas production increased 8.1 percent last year alone, about the same as in four years in the previous decade, the International Energy said in report released today.

U.S. Surplus Gas

“While the U.S. has yet to export LNG, it is already physically exporting its gas surplus to neighboring countries,” including Canada and Mexico, according to the report. While Australia’s LNG production was stagnant last year, the country is expected to be the largest LNG supplier by the end of the decade, the IEA said.

Shell, Exxon, Chevron Corp. (CVX) (CVX) and Woodside Petroleum Ltd. (WPL) are among companies leading $180 billion of liquefied-natural-gas ventures in Australia that are underpinned by demand from Asia’s biggest economies. China, estimated to hold triple the shale reserves of the U.S., and Australia will see the next wave of the gas revolution as world LNG demand doubles in the next decade, Voser told delegates at the conference.

Woodside, Australia’s second-biggest oil and gas producer, said the U.S. is unlikely to grant new natural-gas export permits until after the presidential election and volumes eventually shipped may be lower than some predictions.

U.S. Obstacles

“Some people speculate about numbers up to 100 million tons per year” of liquefied natural gas exports, Chief Executive Officer Peter Coleman said in an interview at the Kuala Lumpur conference. “I don’t see that. It’s unlikely there will be a lot of movement on additional expansion until after the election cycle in the U.S.”

Woodside, operator of the A$15 billion ($14.6 billion) Pluto LNG project in Western Australia, expects the U.S. to export 30 million to 50 million metric tons of the fuel

“In the U.S., you are always going to have constraints with the need for gas in power generation and the chemicals industry,” Coleman said. “That says a lot of gas will stay in the U.S.,” he said. “Australian LNG has its place.”

Benchmark gas prices in the U.S. have slumped to the lowest in a decade amid a supply glut.

Gas futures slid to $1.90 per million Btu on the New York Mercantile Exchange April 19, the lowest since September 2001.

Oil prices are unlikely to collapse as they did in 2008 because long-term fundamentals haven’t changed and supply will struggle to meet a projected increase in global demand, according to Voser.

U.S. crude futures, which slumped to an eight-month low near $81 a barrel yesterday, have declined because of concern over economic growth this year and as geopolitical tension in producing regions subside, the Shell CEO said.

Oil Prices

“The softening of the oil price at the moment is a reflection of some of the geopolitical issues being less dominant and the lower demand outlook,” Voser said. “The long- term fundamentals haven’t changed, which means that most probably, given energy-demand growth in the world in the longer term, supply will struggle to keep pace.”

Oil dropped from a record high of $147.27 a barrel to $32.40 between July and December 2008 as the global recession sapped demand. Futures on the New York Mercantile Exchange tumbled 17 percent last month, the most since December 2008, and traded today as high as $84.92 a barrel.

“We’ve seen a lot of volatility, mainly on the demand side,” Voser said after delivering a keynote address at the industry gathering. “We’ve had some geopolitical dimensions around the Middle East, in Iran and Syria, following the political tensions in Libya a year ago, so I think that’s reflected in the price in the more short to medium term.”

Oil traded as high as $110.55 a barrel March 1 on speculation that international sanctions against Iran threatened supplies from the world’s fourth-biggest producer. Prices have since dropped as Iran resumed talks with the West over its nuclear program while Europe’s debt crisis and China’s slowing economy damped the outlook for oil demand.

original article

_

A little known refund can help save you money. It’s the Louisiana Alternative Fuel Tax Credit, a credit that can return 10% of your car’s cost to your wallet. You only have to buy a car that runs on something besides gasoline.

The state recently clarified the rules to point out what qualifies. Hebert’s Town and Country President Mark Herbert says his dealership is working to better inform customers about the tax credit. He says several cars qualify for the credit, so customers don’t need to look too hard for a deal. Herbert points out that flex-fuel vehicles, which can use regular gasoline, are on the list.

“You can run regular fuel, but it is capable of running on E85, which we’re able to produce in the United States a lot cheaper,” he said. That makes paying for E85 fuel cheaper but at another cost.

“It’s a lower price at the pump, but your fuel economy isn’t as good as with regular fuel,” Herbert said.

Tax Manager Patrick Caraway says he and other tax preparers are contacting their clients to let them know about the savings and how to get them.

“You claim the credit on the return for the year on which you purchased the vehicle,” Caraway said.

To claim a car already purchased ask your tax preparer about amending an old return.

“So, for instance if you bought a vehicle on June 15, 2010, you would file an amended Louisiana tax return for the 2010 tax year and claim the credit on that return,” Caraway said.

If your car is more than $30,000, you can only be refunded $3,000. Louisiana’s Alternative Fuel Tax Credit doesn’t just cover flex-fuel vehicles. Those that run on or have been modified to use CNG qualify, as well as certain diesel vehicles.

original article