Russell Bruce
September 22, 2009
Zenobia Barrow
September 24, 2009
There’s no question about the importance of the oil and gas production industry to the Tri-parish area.
“It’s absolutely critical to the Bayou Region,” said Tony Boudreaux, president of the Houma-based South Central Industrial Association. “How many businesses feed off the business generated by oil and gas exploration and construction?”
Prices have been significantly lower than last year. In July 2008, the cost of a barrel of oil was $125. Last month the price was $70. Oil and gas representatives in Louisiana say the industry has troubles. Still, they feel the industry is generally strong.
The state has the third highest reserves of oil and natural gas in the U.S. Louisiana’s 3.8 billion barrels of crude oil reserves trail only Texas’s 5.3 billion barrels and Alaska’s 4.2 billion. Louisiana’s 21.1 trillion cubic feet of natural gas reserves trail Texas’ 74.9 trillion cubic feet and Wyoming’s 29.7 trillion. (All figures from the Louisiana Department of Natural Resources.)
The state’s 19 refineries provide 15 percent of the total refining capacity of the country, according to the Louisiana Mid-Continent Oil and Gas Association in Baton Rouge.
One of the biggest concerns, though, is that the oil-and-gas-dependent Houma area has seen a mild increase in unemployment in recent months. Figures from the Louisiana Workforce Commission show the area lost 520 jobs between May 2008 and May 2009.
Rig counts in the Gulf of Mexico have declined significantly as well, from 67 in September 2008 to 31 in September 2009, according to the West Texas Research Group Web site.
“With $70 a barrel oil, we should still be rockin’ and rollin,'” said economist Loren Scott, who has given talks twice during the last year in the Houma area about the local and state economy.
The emeritus professor at LSU released a much-publicized report in April 2008 on the economic impact of Port Fourchon on the nation’s economy. The report contended that a hurricane-induced, three-week shutdown in services from Port Fourchon would lead to a loss of more than $12 billion in sales and earnings nationally and a loss of 77,440 jobs.
Scott, along with several others associated with the industry, places much of the blame for the lower rig counts on the federal government proposing to increase taxes on the oil and gas production industry.
Scott said President Obama is proposing $33 billion in new taxes on the industry, including removing depletion allowances and eliminating writing off intangible drilling costs.
“Legislation has put the quietus on activity,” he said.
According to Scott, the rig count in the gulf began to drop as soon as Obama proposed the new taxes, a threat to the industry’s capital funding effort.
Prohibitions on oil drilling off the coastlines of sections of the U.S., such as Florida and parts of the West Coast, are another large problem for the industry, he said.
“We know where the oil is but we can’t drill,” he said. “We have mind-boggling energy policies.”
“Our business is tied to the rig count. … It’s a challenging period of time,” said Gene Shields, assistant director of investor relations with Houston-based oilfield services company Baker Hughes. The company has an office in Houma.
“It’s the most rapid decline in the rig count we’ve seen,” he said.
However, according to Shields, the rig count has experienced an uptick in the past 10 to 12 weeks.
“We continue to support our customers. There’s still plenty of activity,” he said, pointing to the huge Haynesville Shale gas field in north Louisiana.
Don Briggs, president of the Baton Rouge-based Louisiana Oil & Gas Association, said he feels certain that the Florida coast will be opened to drilling eventually, benefiting the Houma area in a large way.
“If I can predict anything, that will happen,” Briggs said about opening up Florida to drilling.
He said support exists in Florida for legislation to remove the prohibition on drilling; the rigs would be serviced out of Port Fourchon and Venice in Plaquemines Parish.
“Florida will not build pipeline infrastructure,” Briggs said. “The pipes will come across the gulf to Louisiana. Lafayette and Houma will provide support. … Oil is depleting. We have to find more sources to stay even.”
But otherwise Briggs sounded a strongly pessimistic note.
“Now, we’re hurting. There’s a low rig count in coastal Louisiana,” he said. “The southern part of the state is at an historic low. Due to different reasons, I’ve never seen it so bad.”
“When your industry is hurting as bad as it is in Houma and Lafayette – you have a record low rig count in the Gulf of Mexico – these are not good times,” he said. “The weeklies in Lafayette put out special oil and gas sections, but there’s nothing special going on.”
Briggs said recent lawsuits directed against oil and gas production companies with operations in Terrebonne Parish have not helped to pick up activity. Assessor Gene Bonvillain filed suits against 31 companies, alleging that they underreported on property tax forms their production from oil and gas units in the parish.
“(He’s) charged some executives with RICO violations,” Briggs said. “They were falsely done. It will have a huge impact on oil and gas activity in Terrebonne. I’ve had company presidents call me: ‘Because of the lawsuits we will no longer explore for oil and gas in Terrebonne.'”
Bonvillain responded, “Mr. Briggs represents the oil and gas industry. He does a fine job, but we have two separate agendas.”
More positively, Briggs sees the advanced technology used by the oil and gas production industry as a true bright spot.
“Our technology is the most advanced in the entire world,” he said. “We’re actually the teacher of the world when it comes to oil and gas.”
Horizontal drilling – which involves moving the drill parallel to the earth’s surface after it is sunk vertically – has been a boon to the natural gas production industry as a whole, although the method is not suited to Louisiana’s geography.
“That technology will enhance the natural gas industry more than anything,” Briggs said. “Because of that technology we have a 100-year supply of natural gas. That technology has advanced the industry to a whole different level.”
He said the advanced methods used by the industry allow larger independent oil and gas production companies to compete with the nationalized firms in many other countries, though smaller independents have a much tougher time surviving.
“In the industry, technology is changing so fast, to a layman it’s mind-boggling,” Scott said.
Scott was especially impressed by BP’s discovery several weeks ago of the gigantic Tiber oilfield 250 miles southeast of Houston in the gulf, part of the lower tertiary trend. The field was found using the deepest oil well ever drilled at more than five miles below the seafloor.
“To drill in the lower tertiary in the Gulf of Mexico, it’s two miles to reach the bottom,” he said. “It’s like landing a man on the moon. They’re doing a great job. They’re leading the industry in technical change.”
Scott’s opinion is that BP’s Tiber field is a segment of the larger Jack field discovered in 2006 and believed to contain 15 billion barrels of oil. However, he said the media portrayed the Tiber field as a brand-new find.
“Before the discovery of the lower tertiary, they were getting concerned the Gulf of Mexico was getting mature,” he said. “They thought the good old days in the Houma area had ended. The discovery created new opportunities in the Gulf of Mexico.”
“The Gulf of Mexico is still a viable source of oil,” said Larry Wall, director of public affairs for the Mid-Continent Oil and Gas Association.
Wall said gas hydrates – frozen natural gas deep in the ocean that has to be brought to the surface before melting – are a promising source of fuel.
“That’s a tremendous amount of energy,” he said.
Wall was optimistic overall.
“The future is strong. I’ve seen prices go up and down. It’s a very cyclical industry,” he said. “Companies are drilling new wells.”
Even though the demand for oil is flat, Wall said, the need for oil wells exists.
“Companies will find and produce,” he said.
Wall said the idea behind oil and gas production companies staying competitive is simple.
“You need to make more than you spend,” Wall added. “We compete with nationalized oil companies as in Venezuela and Norway. We’re competing against the whole country.”
Like Scott and Briggs, Wall said the key is technology.
“As long as technology improves, we will improve production per barrel,” he said. “We will stay competitive.”
Also like Scott and Briggs, Wall sees the views held by the federal government as a problem.
“The attitude toward oil and gas is not good,” he said. “They feel solar and wind power will replace them, but they won’t anytime soon. Natural gas and crude, you have to keep it going.”
U.S. Rep. Charlie Melancon (D-Napoleonville), who sits on the House Budget Committee, dissuaded the committee chair from repealing tax breaks for the oil and gas production industry in the U.S. and adding new taxes, according to Melancon spokeswoman Robin Winchell.
“He said they (taxes) would be detrimental to Louisiana,” Winchell said. “During a national recession, you shouldn’t harm the industry. The chairman agreed, so the new provisions were not in there.”
Melancon also voted against cap and trade legislation. “He tried to make it better for refineries in our district,” Winchell said. “He thought that (cap and trade) was not good enough.”
Nevertheless, for Scott, troubles in the oil and gas production industry boil down to the federal government’s involvement.
“It’s an issue of the government not making it competitive with taxes,” he said. “Also not allowing them to drill for oil and gas.”
SCIA’s Boudreaux agreed about problems stemming from Washington, D.C.
“We’re facing some challenges,” Boudreaux said. “On the national level we need some direction. Prices have to level off and be consistent. We need to get clarity on the national issue.
“This region continues to outpace the nation,” he added. “It’s directly related to oil and gas.”
There’s no question about the importance of the oil and gas production industry to the Tri-parish area. Although industry representatives feel the industry is generally strong, it does have troubles. * File photo / Tri-Parish Times
