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A new report by LSU scientists warns that Gulf Coast residents must prepare for higher seas and accompanying effects such as as stronger hurricanes, further wetlands erosion and saltwater intrusion.

The report, which pulls data from dozens of government and private sources, says Louisiana’s southern parishes, including Terrebonne and Lafourche, are more susceptible to sea-level rise than other coastal communities because of the land’s composition.

Terrebonne and Lafourche parishes are built on sediment from the Mississippi River. But the land has been starved of this sediment since the river was constrained by levees.

That means the ground in these southern areas is slowly sinking as it settles, said Hal Needham, the report’s lead author and a scientist with Louisiana State University’s Geology Department. The sinking, combined with the steady global increase in sea levels, leads to what is known as “relative sea level rise.”

This gradual sinking accounts for 80 percent of the relative sea level rise in Louisiana, Needham said.

“The rate of along the central and western Gulf Coast is likely the greatest in the nation,” the report states. “The rate in southern Louisiana is 0.36 inches per year, which means that the relative sea level is rising 3 feet per century. This is five times greater than the global annual average experienced over the past century.”

Scientists offer varied estimates of how high seas will rise and how much the land will sink. But the signs through the past century are clear, Needham said, and the effects could be devastating for the parishes’ roads, bridges, buildings and industry within 50 years.

The threat to infrastructure has long been evident along La. 1 in south Lafourche, said Henri Boulet, executive director of the La. 1 Coalition, the group that has fought for years for road improvements and the new elevated highway to the bustling oilfield hub of Port Fourchon.

The report notes that multiple studies for sea-level rise predict portions of La. 1 in south Lafourche will be submerged for 300 days a year by 2050, cutting off access to the port.

In some parts, Boulet said, the highway has sunk more than a foot in the past two decades.

“What happens when the highway sinks another foot in 20 years and we already have sea-level rise happening?” Boulet asked.

A 6.8-mile, $137 million stretch of elevated highway known as the Leeville Bridge between Leeville and Fourchon opened in December.

But Boulet said 7.1 miles of La. 1, a two-lane blacktop highway, directly north of the Leeville Bridge continues to sink. Boulet said there are plans to build a new 8.3-mile section of elevated highway stretching the elevated roadway to the local levee system in Golden Meadow, but money for the $320 million project has been hard to secure.

Needham’s report says parish industry staples, including Port Fourchon, should be aware of the rising Gulf of Mexico and start taking protective measures.

The report warns that the energy industry along the coast is particularly vulnerable as seas rise and hurricanes grow more intense. Needham said the rising sea levels are connected with warmer ocean temperatures. Because there are several factors tied to hurricane formation, these warmer temperatures may not mean more storms, but the storms will likely be, on average, more intense.

Studies show hurricanes destroy 2 percent to 4 percent of oil platforms in their path while damaging 3 percent to 6 percent, the new report notes. In all, losses to the energy industry will reach $21 billion by 2030 and $31 billion by 2050 given climate-change scenarios that include “modest” estimates for temperature rise, the report states.

Don Briggs, president of the Louisiana Oil and Gas Association, said there is still much skepticism in the energy industry over rising sea levels, but there is a realization that Louisiana is losing coastal wetlands and hurricanes can wreak havoc on pipelines, platforms and and rigs.

Briggs said following the hurricanes of the past five years, the industry has been eager to fortify the engineering and strength of its infrastructure and has been instrumental in funding many coastal-restoration projects.

Chett Chiasson, executive director of Port Fourchon, said he is aware of the threat sea-level rise poses but noted it isn’t a pressing concern for the port itself, as it is constructed in an elevated position with land being built around it.

Chiasson noted that hurricanes Katrina, Rita and Ike took a heavy toll on the port, which has since taken measures to elevate its facilities and fortify them to better withstand incoming hurricanes.

The report details the ecosystem’s stake in the rising seas, saying Louisiana already loses an area the size of a football field to coastal erosion every 37 minutes, a rate that will accelerate.

Deterioration of the wetlands means less protection from storm surges that will pound the more-populated areas inland, Needham said. The report cites studies that suggest storm surge increases one foot with every 2.7 miles of wetlands lost.

“The coast is a really delicate ecological balance of saltwater areas, brackish areas and fresh-water areas,” Needham said. “Sea-level rise causes salt water to move farther inland, pushing those lines back.”

Drinking water could be affected as salt water encroaches further inland, he added.

The report says fishing infrastructure, such as docks, ice houses and processing facilities, is also vulnerable.

Aaron Viles, deputy director of the Gulf Restoration Network, said the ocean is absorbing more carbon dioxide, which makes the water more acidic and thus harming shelled sea creatures such as oysters.

Viles noted that many of the studies regarding sea-level rise are worst-case scenarios and don’t necessarily have to come to pass if there are calculated drawbacks in greenhouse gas emissions.

“It requires leadership, and the state of Louisiana is totally without leadership on this issue, even though we are in a position with the most to lose,” Viles said. “Anyone who lives south of I-10 and doesn’t like what they are hearing, there are things we can do about sea-level rise.”

The new report was prepared for and funded by the Center for Climate and Energy Solutions, the successor to the Pew Center on Global Climate Change.

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Louisiana as a whole is “way behind” on the use of compressed natural gas as a cheaper and cleaner fuel for vehicles, but leave it to Lafayette to once again distinguish itself a leader in the state for its efforts to lower the city’s carbon emissions with CNG-run government vehicles and natural gas fueling stations for the public.

Lafayette Consolidated Government Planning Manager Mike Hollier says the city is roughly 2.5 years into its five-year plan to convert all of the city’s buses and most city-owned vehicles (more than 100) to run on CNG.

The benefits for the city and its residents are two-fold, Hollier says, because CNG is both cheaper (about $1.80 per gas gallon equivalent) and helps to lower the EPA-monitored carbon footprint in Lafayette.With grant money in place from both the state and the federal government, Lafayette has already converted five of its buses to run on CNG. Hollier hopes to have more than 100 city-owned vehicles converted to CNG within two years, while also working with UL Lafayette and the Lafayette Parish School System to have their transit buses running on the clean-burning fuel within the same time frame.

The city currently has two CNG fueling stations in operation — the privately owned Apache station on Verot School Road and the LCG-owned station at the public works facility — and a third slated to open in the next few months. That one, on North University Avenue, will be LCG-owned and open to the public. The five-year plan, if successful, will also bring a third public fueling facility (Apache is open to the public) to an undetermined location along I-49 or I-10.

“After two years and a lot of study, it was decided that CNG was the way to go both in the short term and the long term,” Hollier says. “There’s a very positive cost benefit. There’s an additional capital outlay up front, [but] once you make those conversions, the benefits begin to pay off in a matter of years.”

Louisiana is the nation’s top producer of natural gas, according to Louisiana Oil and Gas Association Vice President Gifford Briggs, a factor Hollier says played a role in the city’s decision to invest in CNG.

“It’s home-produced and readily available all around us,” Hollier says.

CNG conversion is a no-brainer for oil and gas industry advocates like Briggs, who notes that the U.S. has a 100- to 150-year supply of natural gas.

Briggs, who commutes daily from his home in Lafayette to the LOGA office in Baton Rouge, has so much faith in the future of natural gas he decided to “put his money where his mouth is” and converted his own Ford Expedition to a “bi-fuel” SUV that runs on both gasoline and CNG. The LOGA lobbyist is able to take advantage of two different types of CNG fueling stations — the Apache station on Verot as well as a home fueling station that’s been installed at LOGA’s office, the Jimmy Davis House in Baton Rouge.

“Apache donated the whole thing,” Briggs explains. “For all practical purposes it’s a box with a hose coming out of it that’s connected to our natural gas line. It’s similar to what we’d do to electric vehicles.”

Money, however, is one of the reasons natural gas hasn’t taken off as quickly as many had hoped in terms of replacing gasoline as the primary means of fueling vehicles. As a recent Wall Street Journal report notes, government agencies using dump trucks, buses and other gas guzzlers and heavy polluters are more eager to jump on board with the start-up costs that come with CNG conversion. The average American is less enthusiastic about conversion costs that run in the thousands, and before recently factories weren’t even churning out CNG-ready vehicles for consumers to consider.

But the nation and Louisiana are finally catching up with the rest of the world when it comes to CNG, Briggs says, with Ford, Dodge and Chevrolet all slated to place bi-fuel pickup trucks on the market soon, albeit in limited availability.

The 100 percent CNG Honda Civic could be available for purchase at Moss Motors within six months thanks to the Apache CNG station that recently opened and the plans for more CNG stations to come. Briggs notes that Honda does not allow dealerships to sell the CNG model unless there’s a fueling station within 25 miles.

“We have enough natural gas to fuel transportation infrastructure, and we rely heavily on oil from countries outside the U.S.,” Briggs says. “It’s cheaper; it’s better for the environment. It seems like it’s such an obvious win for Louisiana because we could very easily become energy independent.”

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For the first time since the BP oil spill, millions of acres in the Central Gulf of Mexico are up for grabs during an oil and gas lease sale taking place in New Orleans. In all, 39 million acres of potential oil and gas drilling are for sale, with 48 companies submitting bids on hundreds of tracts – anywhere from three miles to more than 230 miles off the Louisiana coast.

Wednesday’s oil and gas lease sale is the first in the Central Gulf, since the Deepwater Horizon exploded more than two years ago. It is attracting attention and added scrutiny.

“It can be intimidating for a regular person to just walk into a meeting by industry and by government,” said Anne Rolfes, director of the Louisiana Bucket Brigade. “And so, this is a way to train people on how to use their voice.”

The Louisiana Bucket Brigade and others are forming a Citizens’ Monitoring Group to keep tabs on Wednesday’s sale.

“This is a very important event that will affect the public, public property,” said Kristen Evans, who is helping to organize the Citizens’ Monitoring Group. “The very effect of seeing and being seen, reminds government and industry, that they have responsibilities and that they are accountable to the public.”

In addition, several environmental organizations are suing the federal government, in an attempt to stop the sale altogether, because of concerns about potential oil spills.

“We’ve drilled literally thousands and thousands of wells in the Gulf of Mexico and you can ask any fishermen out there how important the infrastructure is out there for fishing,” said Don Briggs, President of the Louisiana Oil and Gas Association. “I expect environmentalists to do what they’re going to do, but it’s unjustified.”

The sales demand is high in the Central Gulf, in part, because Congressman Steve Scalise said there is uncertainty about when the next sale will be.

“Just like in this case, we’re expecting a whole lot of interest because it’s been so long and it’s also coupled by the fact that President Obama has still yet to release his five-year lease sale plan,” said Rep. Scalise, R-Louisiana.

The oil and gas lease sale will take place at the Superdome on Wednesday, beginning at 9 a.m. Secretary of the Interior Ken Salazar will be on hand to announce the results of the sale at noon.

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Sen. David Vitter has formally thanked Gov. Bobby Jindal for signing into law a legacy lawsuit solution passed by the Louisiana Legislature.

“I want to thank the state Legislature for passing this strong solution to the legacy lawsuit issue which Governor Jindal signed into law,” Vitter (R-La.) said. “It will help clean up real contamination and shut down the trial lawyer bonanza, which has been hurting job creation in our energy sector.  [The solution] happened for one reason – legislators did their job, faced a tough issue and voted the right way in the House, and in the Senate.”

Legacy lawsuits proved to be a contentious issue for legislators during their 2012 regular session. The state Senate and House of Representatives ultimately accepted a procedural compromise presented by state Sen. Bret Allain.

“Landowners wanted more oversight,” Allain (R-Jeanerette) said after presenting SB-731 an alternative to HB-618 in April. “So what I did was set up as an oversight committee comprised of the Department of Natural Resources, Commission of Conservation, Department of Environmental Quality, Wildlife and Fisheries, Department of Agriculture, Department of Health and Hospitals and, in coastal parishes, and the Coastal Protection and Regulation Authority. “

Allain argued that by giving each agency a say in the matter, individual cases would be fully addressed without landowners and oil companies having to come back later to address added complaints.

Throughout legislative debate, Vitter argued that a stalemate regarding legacy lawsuits favored trial attorneys who he said seek millions in damages, above actual cleanup costs.

“The Louisiana Oil and Gas Association would like to give particular praise to Sen. Vitter for his leadership as a driving force that resulted in this much-needed solution to these frivolous legacy lawsuits,” LOGA President Don Briggs said. “While this was not a Capitol Hill battle, Sen. Vitter made his voice heard in our home state of Louisiana. These two pieces of legislation successfully passing out of the state legislature would not have been possible without his willingness to speak out on behalf of the industry and keep the issue on the forefront of the public debate.”

“The Louisiana Landowners Association appreciates that the Governor’s Office has helped to achieve this compromise,” Louisiana Landowners Association Executive Director Paul Frey said. “We add a special thanks to Sen. Allain who is a key advocate for landowners.”

“To reach a compromise, it was important that we came to a balance that enables us to continue to lead the country in energy production and also be good stewards of the environment,” Natural Resource Secretary Scott Angelle said in the news release from the governor’s office. “This compromise provides for transparency in the process, accelerates clean up of the environment and protects innocent parties from punitive damages.”

Vitter highlighted key components that he fought for and that became part of the solution. The senator’s contributions to legislation allows operators to accept responsibility and be credited for cleaning up sites, calls for pretrial public hearings and makes sure the clean-up plan is publicly available and admissible in court.

The term legacy lawsuits refer to claims brought by landowners against oil and gas operations in relation to contamination of property related to drilling and extraction sites.  These lawsuits are often filed against every operator who has ever worked a section of property.

Until now, lawsuits could include multiple companies, even if some lease-holding companies are not the ones responsible for contamination that occurred prior to their ownership.

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The Louisiana Mineral and Energy Board collected $2.9 million for the June sale of mineral rights on state- and local government-owned land.

The board, which met Wednesday, awarded 16 leases covering about 6,200 acres out of 44 nominated tracts covering about 55,500 acres total.

The board reports more than $34.2 million collected in lease sales for fiscal 2012, which ended June 30.

This month’s sale comes as interest picks up in the Tuscaloosa Marine Shale, a 2.7 million-acre play that spans central and southeast Louisiana and a section of Mississippi. Experts estimate the play has a reserve of about 7 billion barrels of oil that can now be reached with new horizontal drilling technology.

Devon Energy Corp. of Oklahoma City and Indigo Minerals of Houston released positive flow test results for oil wells located in central Louisiana early this year.

The board sold five leases in Avoyelles Parish in central Louisiana for about $2 million this month.

The board also sold leases in St. Martin, Lafourche and Plaquemines parishes.

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For the last several months all eyes have been focused on the successful completion of The Davy Jones #1 Well in just 20’ of water in theLouisianaswamp.  McMoran is the operator and its key partners are Energy XXI and Tex Moncrief.   The well has cost a large fortune and has taken far more time and money to complete than ever expected.

That said, one of the tasks of the partnership group has been to explore the vast area that stretches from Blackbeard West, the first of MMR’s ultra deep Gulf of Mexico discoveries to Blackbeard East, Lafitte, and the two Davy Jones wells closer to shore. The targeted sands were down more than 30,000’ and some of the wells went further to see what was there to see. Conditions are harsh and forbidding. New equipment had to be invented to control the temperatures and pressures.

Along the way, the group has worked hard to correlate the sands they discovered and various geologic formations covering a vast geographic expanse in their efforts to prove their geologic theory about deposition of hydrocarbons deep under theGulf of Mexico. Most of their wells are the deepest drilled to date below the mudline. The original geologic concepts have had to be modified from theories to reflect what has actually been encountered with the drill bit.

On June 19^th, EXXI will be holding its Annual Analyst Day at the Waldorf Astoria in NYC.  It is always a really  informative event.  This year should be no exception.  EXXI has focused mainly on being an “oily” company in the properties it has purchased since the company was formed a few years ago.  It leapt forward into the bigger leagues by buying a large tract of older properties from XOM at the end of 2010 for a billion dollars. These wells  are very significant to EXXI but had become irrelevant to Exxon. When the deal was negotiated, oil was at $80. For the last 18 months, prices have been much higher than that so the debt paydown has  been far more rapid than ever expected.  EXXI also does a great job of hedging its exposures. It also sells based on Brent pricing instead of WTI and that helps, too.

EXXI has largely confined its gas efforts to be a significant junior partner to McMoran. Often Jim Bob Moffett disperses information about his drilling program by having John Schiller give updates on the latest progress. So it is reasonable to expect some new information at the meeting this week.

However, as the last year has unfolded, the Cupola Play has grown in importance to both of these companies and to the Moncriefs as well.  As the five wells listed above were drilled, the partners have refined their perception of the salt weld and what it portends for future exploration projects. In some cases, anomalies that presented themselves on the seismic data were believed to be extensive salt. When drilling, that was not always the case. In some of the wells, the salt was thin or absent.

The model has been revised in recent presentations by both MMR and EXXi showing the targeted sands much closer to the surface than originally believed.  It has sometimes been slow going just under the salt because significant rubble zones have been encountered that are much like glacial moraines or breccia, a zone of broken rock, that is typical of the rocks and debris pushed forward as a glacial moraine by advancing glaciers and then left behind when the glaciers begin to retreat. New York‘s  Long Island is such a glacial moraine left in the last ice age only 10,000 years ago.

We have already been told that Ship Shoal 188, AKA Blackbeard West #2, experienced a kick just as the salt weld was penetrated. That is a very encouraging sign for the theory that the cupolas provided very effective seals for hydrocarbons.  About a month ago, Schiller stated at one of his talks that they believed C5 hydrocarbons were present.  We also know that the pressures at Ship Shoal 188 are such that this well, if successful and a discovery, can be produced with conventional off the shelf equipment including just 20,000 lb. Blow Out Preventers.  The pressures increased by over 2000 lbs in the space of just 160 vertical feet of drilling as the salt was penetrated.  That kind of increase is significant and very promising for significant hydrocarbons to be present.  Also at these shallower depths, there is a very good chance that what is trapped is heavy hydrocarbons with far more economic value.

Ship Shoal 188 was drilled  because it helps to prove the Cupola Theory and to preserve MMR’s rights to the vast unit that is Blackbeard West, particularly if it is brought onto production rapidly.  MMR confirmed a few weeks ago that the expectation was that SS 188 might be coming online, if a discovery, simultaneously with Davy Jones #1.  Now it sounds as if this well will be fast tracked and completed perhaps even in the second half of 2012.  That is important to cash flow because what is likely to come out of this well is much higher value products than the natural gas at the bottom of the Ultra Deep wells. With Nat. gas selling in the low $2’s these days, production that can be sold for two or three times that would make SS 188 a very successful well.And the better news is that if the Cupola Theory is proved valid, just to the west is the Barbosa prospect which on seismic they have shared for months now looks many times the size of SS 188.  I expect the announcement of a rig out there at Barbosa soon. McMoRan always reports its quarterly results rapidly after the end of a fiscal quarter. I’d bet that Moffett will be talking a lot about Barbosa on his next quarterly call and maybe he will have some more information for us about Ship Shoal as well.

We also know that the partners will be showing up at lease sales this week to expand their acreage portfolios with the new focus onshore rather than offshore, or so they have said.  We know they are engaged with Chevron at Lineham Creek onshoreLouisiana. In SEC parlance, we and they are assembling the mosaic of information as they develop this enormous play which stretches for 200 square miles already and maybe soon even more.  We should learn soon what their areas of focus will be going forward.   This next week and the next month should be important ones for the Shallow Water Ultra Deep play. As Jim Bob always likes to say: “Stay tuned!”

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