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“The Obama Administration approved the first permit to drill a deepwater well in the Gulf of Mexico on Monday. The issuance of this permit marks the first deepwater permit allocated since the enactment of the federal drilling moratorium imposed after the BP oil spill last spring. The permit allocated to Noble Energy represents a significant landmark for offshore oil & gas companies and the federal government.”

“The Administration’s decision to issue this permit is positive news for offshore oil & gas companies, and also great news for many people in the Gulf Coast region. Since the enactment of the federal drilling moratorium and the subsequent de facto moratorium, businesses of all sizes and hardworking individuals have felt the negative impacts of economic uncertainty and
job loss.”

“While the issuance of the first deepwater permit is certainly a positive step in the right direction, the federal government must ensure that a streamlined process is established to issue additional permits to all companies that meet the new offshore safety standards and requirements.”

“In addition, it is imperative that the Administration also works to alleviate the ongoing de facto moratorium that has shutdown shallow water operations in the Gulf of Mexico. The intention of the federal drilling moratorium was to only affect deepwater wells. Since the moratorium was instituted in April of last year, only 37 shallow water permits have been issued.”

“We commend President Obama and officials at the BOEMRE for moving forward with the issuance of this permit. However, much work must be done to ensure that companies who have met all federal requirements receive permits. Without a streamlined process established we will continue to see job loss, a rig exodus, and curtailed domestic production. With rising energy prices and turmoil in the Middle East taking a turn for the worst, it is more important than ever that we get back to work in the Gulf of Mexico and ensure our nation’s energy future.”

To view the official press release from BOEMRE please click here.

There has been some discussion of late in regard to the Legislative Fiscal Office statements that the State of Louisiana has seen a decrease in mineral income, despite the rising price of oil and growth in the Haynesville Shale. It is their assertion that a major reason for declining revenues is due to untaxed natural gas production in the Haynesville Shale and the belief that drillers are shifting rigs from non-tax-exempt fields in south Louisiana to tax-exempt fields in north Louisiana. This could not be further from the truth.

In reality, oil and gas development in south Louisiana has declined for years due to a variety of production and economic concerns. Drilling that occurs in the Haynesville is for natural gas and companies who operate in the shale are predominantly natural gas operators. These companies, many for the first time, have made the decision to conduct operations in northwest Louisiana from their corporate headquarters in the states of Texas, Oklahoma, Wyoming, and Colorado, among others. Most Haynesville Shale operators have never had major operations in South Louisiana.

Current low natural gas prices and high oil prices have shifted competition from pure natural gas shale plays like the Haynesville to shale plays that contain both natural gas and oil such as the Eagle Ford, Niobrara, Anadarko Basin, and Bakken formation. Additionally, Haynesville well costs continue to rise to between $9-12 million, making them some of the most expensive onshore  wells to drill in the country.

The amount of severance tax dollars the state receives is dependent on the price of natural gas.  However, the severance tax rate is set for the current year, based on the prior years average price.  As the U.S. experienced record-high natural gas prices in 2008, this lead to inflated projections for state collected taxes in 2009 and 2010.  Because of declining natural gas prices, the state is now facing a severance tax rate that is half of previous years collection.  In the end, future projections of revenue are just that — projections.  No one could have predicted the natural gas market drop from $13/mcf in 2008 to less than $4/mcf in 2009.

Additional questions were raised concerning the rate of depletion of Haynesville wells resulting in limited tax revenue. It is important to understand that once a well reaches payout, from that moment on, severance taxes are then paid to the state on all production.  If wells are producing at a significant rate and pay out in a timely manner, the state will receive its share of severance tax dollars much sooner.

A chief economist with the state’s Legislative Fiscal Office claims, “For all practical purposes, we may essentially get little or nothing.”  This statement is in stark contrast to the actual dollars paid to state and local governments by Haynesville Shale operators.

From 2008-2010, the utilization of Louisiana’s severance tax relief program resulted in the injection of over $13 billion in investment by companies working in the Haynesville Shale. Haynesville developments have brought new dollars to the state in the form of corporate taxes, sales taxes, ad valorem taxes, and new personal income taxes. To date, nearly $1 billion has been paid to local governments, parishes, and the state.  In years 2010-2014, it is estimated that Hayneville operators will pay over $1.2 billion in taxes to the state.  These numbers are far from “little or nothing.”

Any attempt to repeal this severance tax incentive is shortsighted, and the long-term effects would dramatically decrease growth in the Haynesville Shale and future revenue for Louisiana.

Louisiana Oil & Gas Association – Don Briggs –

The North Louisiana rig count continued on its upward trend to 85 rigs this past week, up 9 rigs from 76, while the South Louisiana land, inland water and Gulf of Mexico rig count collectively gained 2 rigs for a total of 52, a historic low. The growth in the North Louisiana rig count is unprecedented in the United States. While the South Louisiana rig count is down 55 percent compared to last year, North Louisiana’s rig count has increased over 20 percent. The 20 percent growth in North Louisiana stands out more clearly when compared to the rig decline of 52 percent for the United States, and even more so compared to Texas’ and Oklahoma’s decline of 64 percent and 62 percent respectively.

Just over a year ago, when North Louisiana’s rig count was at 47, I wrote, “As much as I dislike the word “boom”, there are likely the beginnings of one in North Louisiana.

Just how vast an area the Haynesville Shale covers, I don’t know, but I have been told from good sources it spreads out into five North Louisiana parishes.” I went on further to predict the Haynesville shale rig count would be at 70 rigs in twelve months. Platt’s wrote at that time, “Until some solid repeatable well data emerges, the Haynesville will remain more a diamond in the rough than diamond ring”. It appears to me the Haynesville shale is no longer a mere diamond in the rough. The Haynesville is the real thing.

Today there are 130 producing Haynesville Shale wells, 60 drilling, 149 waiting on completion, and 156 permitted to drill. The Louisiana Office of Conservation reports there are 888 adopted Haynesville Shale units.

Just how big is the Haynesville Shale? Estimates are 250 tcf (trillion cubic feet) and up. The economic impact of the Haynesville Shale on the entire state of Louisiana is of major significance. To understand the potential magnitude of the Haynesville, Louisiana Department of Natural Resources Secretary, Scott Angelle, contracted economist Loren Scott to conduct a direct and indirect economic impact study of the Haynesville shale to Louisiana’s economy

Scott determined during the year of 2008: The extraction activity of these seven firms generated approximately $2.4 billion in new business sales within the state of Louisiana. New business sales in turn created new household earnings for residents of the state. As a result of these activities, nearly $3.9 billion in household earnings was created in 2008. This estimate includes both direct and indirect earnings and includes almost $3.2 billion in lease and royalty payments to private landowners.

Including the direct employment of approximately 431 employees and contract workers reported by these seven firms, there was an increase of 32,742 new jobs within the state in 2008 Our conservative estimate is that collectively, state and local tax revenues increased by at least $153.3 million in 2008 due to the extraction activities in the Haynesville Shale. In one parish sales tax collections alone are up over 300 percent in the first quarter of 2009. At a difficult time for our state’s economy and our industry, the Haynesville Shale will be a major pillar that will help prop up the businesses and economy of Louisiana.

Louisiana Oil & Gas Association -

By Don G. Briggs -

On Friday of this week, June 25^th, the U.S. House of Representatives passed H.R. 2524, “The American Clean Energy and Security Act of 2009”, or better know as the “Waxman/Markey cap – and – trade bill. The sweeping legislation, will allegedly put limits on the emissions of carbon dioxide (CO2), which some scientist and former Vice-President Al Gore believe is the cause of “global warming”.

In the past decade, carbon dioxide (CO2) has been touted as the pathway to the destruction of the world’s climate, when in fact, we use CO2 everyday for the betterment of the “American way of life” and now the U.S. oil and gas industry is further developing a technique using CO2 for enhancing the production of depleted oil fields.

There are 3 major sources of carbon dioxide; first, of which we all learned about at an early age. Carbon dioxide is the by-product we exhale when we breathe. The other naturally occurring source of CO2 is from mother earth herself.

Carbon dioxide, like oil and natural gas is trapped in geological structures below the earth’s surface and is drilled for and produced, similar to oil and natural gas. This CO2 is how we get the “fizz” in soda pops and the many other products we consume. One of the largest producing CO2 fields in the U.S. is in Jackson, Mississippi and is referred to as the “Jackson Dome”.

The 3^rd source of carbon dioxide is anthropogenic (man-made). Wikipedia defines “anthropogenic” as “effects, processes or materials are those that are derived from human activities, as opposed to those occurring in natural environments without human influence.” The anthropogenic source is the one that is also referred to as Greenhouse Gas (GHG). GHG is emitted from manufacturers, refiners and chemical plants as a by-product of their industrial process. This is the source of CO2 political groups want you to believe is the cause of global warming.

In the early 80s, Shell Oil was one of the pioneers in developing the technique of using natural CO2 produced from the Jackson Dome, for enhanced oil recovery. In layman’s terms Shell laid a pipeline from Jackson, Mississippi all the way to Weeks Island, Louisiana where Shell had an oilfield declining in production. Shell injected the CO2 into the geological formation causing the oil production to increase substantially. CO2 acts like a detergent when injected into an oil sand, washing the sand and allowing the oil to flow. Due to the low price of a barrel of oil at that time the project was later abandoned because the economics did not work. CO2 enhanced oil recovery projects are capital intensive.

Fast forward to 2009, nearly three decades later, the engineering technique of using CO2 for enhanced oil recovery projects in depleting oil fields has come a long way. As well, America’s manufacturing, petro chemical and refining industries are developing strategies and technology to capture “anthropogenic” (man-made) CO2. The U.S. oil industry will very soon be using both produced natural CO2 and “anthropogenic” man-made CO2 for enhanced oil recovery projects.

United States oil production has been in decline since the mid 70s. With the initial production from an oil field draining only 25% of the oil from the formation, the use of CO2 for enhanced oil recovery will become an important part of our country’s energy security.

For more information please visit www.loga.la

Don Briggs -

Louisiana Oil & Gas Association -

The good news is oil should average $67/barrel for the rest of 2009; the really bad news is natural gas prices may fall further.

Six months into 2009, the oil and gas industry finds itself reeling from what we can now call the “crash of 2009.” Oil and gas industry executives are in a challenging period, closely watching their companies’ assets, trying to have some understanding of what oil and natural gas prices will do and just how far the domestic rig count will drop.

This is by no chance the industry’s first “rodeo.” The domestic oil and gas industry has had its share of good times and bad, which have been different in their own way, but have shared some commonalities. The invasion of Iraq in 2003 caused oil prices to climb; the Asian economic collapse in 1997-98 sent prices to $10 per barrel; the Iraqi invasion of Kuwait sent them up above $20; and of course the severe economic downturn took place from 85-86 when prices plunged to near $12 after OPEC flooded the market with surplus production. Each of these global incidents took their toll on the oil and gas industry by impacting global supply and demand.

Is the “crash of 2009″ any different from the incidents in the past decades? One could arguably that it is. The global oil supply and demand factor is common in all of the past peaks and valleys; however, there are other factors making the “crash of 2009″ more profound, such as the world economic meltdown; the U.S. recession; the collapse of vital capital lenders; and the election of a biased, anti-oil and gas industry administration in Washington. All of the ingredients for the perfect storm.

What is the current crude oil short-term outlook?

As of the middle of June, oil prices have recovered to above $72 per barrel from a low of $35 in February. The Energy Information Administration estimates the price of West Texas Intermediate crude oil to average $67 per barrel for the second half of 2009, which would be a $16 per barrel increase over the first half average.

Of course gasoline prices are seasonally climbing along with rising oil prices, which puts pressure on a struggling economy. The oil and gas industry will once again be blamed for hindering the financial recovery of the world’s economies.

What many do not understand is that the domestic oil and natural gas industry cannot sustain itself with prices below its cost. According to a 2006 study, the finding cost for a barrel of oil in the Gulf of Mexico is $63 per barrel, making it the single most expensive finding cost in the world. In a recent Bernstein Research study of 100 E&P companies in Texas, Oklahoma, Kansas and Arkansas, the average break-even price for a company to sustain itself without any growth is $45 per barrel.

In spite of the continued decline in domestic crude oil production and the continued decline in the number of rigs drilling for oil (a mere 183 rigs), U.S. crude oil production is projected to increase by 150,000 barrels per day in 2009. The increase is due to the 400,000 barrels per day of new production coming online from major deepwater projects in the Gulf of Mexico, such as Thunder Horse.

The world is awash with oil. Inventories are full, pipelines are full and there are nearly 100 million barrels in ships on the high seas looking for the right price and time to unload. For most purposes, OPEC has the price of oil in the middle of its suggested range of $60-$80 per barrel, and I would look for OPEC to maintain its current production quotas in the August meeting in Vienna. OPEC will have to be sensitive to world economies struggling to recover.

The short-term outlook for natural gas, however, is bleak.

The natural gas industry is also swollen with surplus production. U.S. working natural gas in storage is 17 percent above the five-year average. EIA predicts natural gas stocks to reach 3,659 billion cubic feet at the end of the 2009 injection season (October), roughly 94 Bcf above the previous record of 3,565 Bcf reported for the end of October 2007.

According to EIA, “the monthly average Henry Hub natural gas spot price is expected to stay under $4 per thousand cubic feet (Mcf) until late in the year as abundant natural gas supplies converge with weak demand driven by an 8 percent decline in industrial sector consumption.” The electric power industry will take advantage of the low natural gas prices and, using cogeneration, will switch from oil to natural gas for its energy source, offsetting some of the 8 percent decline from the industrial sector.

Unlike the oil sector of the industry, natural gas prices are predicted to remain in their current posture with little to no increase until late 2009. EIA suggests natural gas spot prices will average $4.13 per Mcf in 2009 and $5.49 per Mcf in 2010. The Bernstein Research study suggests the mean break-even price for the Mid-Continent marginal gas producers surveyed was $4.66/Mcf, well above recent prices in the range of $3.80/Mcf.

One year ago there were 1,504 rigs drilling for natural gas in the United States; today there are 685 rigs drilling for natural gas, a 54 percent decline. Consequently, the total U.S. marketed natural gas production is expected to decline by 1.1 percent in 2009 and by 2.6 in 2010.

Some analysts believe the need for the natural gas rig count to climb to the levels of 2008 to sustain production levels may not be necessary, pointing to the technology of the unconventional “resource plays.” Wells being drilled in plays like the Haynesville Shale in north Louisiana come on line as barnburners; however, the high rate of production falls off in 12 months and then levels off for several years. I don’t pretend to be an expert, but I do believe the 28 percent production depletion rate will eat away very quickly at the 4 Bcf per day surplus production, and the industry will need to scurry to stay up in the year to come.

In Acadiana we know how to adjust to the peaks and valleys of the industry caused by supply and demand. Right now, however, the focus of most industry executives is on the uncommon ground of politics in Washington, D.C. Proposals before Congress, if passed, will literally throw the fundamentals out the window.