LOGA State of the Industry: Houston, TX
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www.loga.la Presentation from LOGA Marketing Director Ben Broussard on Monday May 16th, 2011 at the Petroleum Club of Houston.
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LOGA State of the Industry: Houston, TX
- 1. State of the Industry Ben Broussard www.loga.la
- 4. Peaks & Valleys of the US Oil & Gas Industry China/India Demand Growth Subprime Lending Crash Invasion of Iraq Iraq Invaded Kuwait Iranian Revolution Price per Barrel of oil Southeast Asia Economic Downturn US/Russia Cold War Ben Broussard/ LOGA
- 5. China/India Demand? Peak Oil? Middle East Crisis? Obama Attack on US Oil & Gas Companies? The New Era? China/India Demand Growth Subprime Lending Recession
- 7. “this administration ADMITTEDLY IS TRYING TO KILL OIL AND GAS” SENATOR INHOFE
- 8. Natural Gas Average Annual Prices2000-2011
- 9. RIG MAKEUPOilvs.Natural Gas Natural Gas Rigs
- 10. OIL US Rig activity Map GAS
- 11. A golden age for gas? Gas is set to play a key role in meeting the world’s energy needs Gas glut will peak soon, but may dissipate only very slowly Lower prices could lead to stronger demands for gas, backing out renewables & coal in power generation Source IEA
- 12. Federal Issues Access to Resources Investment Incentives Gulf of Mexico Hydraulic Fracturing
- 15. President Obama Continues Efforts to Repeal Oil & Gas Investment Incentives $44 Billion Repeal expensing of intangible drilling cost Repeal deductions for tertiary recovery Repeal percentage depletion allowance for oil and gas wells Repeal domestic manufacturing deduction for oil and gas companies Increase geological and geophysical amortization for independent producers to 7 years
- 16. Gulf of MexicoUnprecedented Uncertainty
- 18. Gulf of Mexico Drilling Activity Before Macondo
- 19. Gulf of Mexico Permits IssuedPrevious year Avg. vs. Since Moratorium Lifted
- 21. Obama-Salazar Moratorium Has Crippled Domestic Oil Production
- 22. The Economic Impact of the Gulf of Mexico Offshore Oil and Natural Gas Industry and the Role of theIndependents SOURCE: IHS GLOBAL 81% of all producing Gulf of Mexico leases - Independents 46% of the Gulf’s producing deep water leases - Independents 1,298 wells drilled in the deep-water GOM - Independents 900,000 bbl. a day of oil equivalent (oil and natural gas together) GOM 2009, accounted for more than 200,000 jobs - Independents $38 Billion in economic benefit in 2009 – Independents Within the deep water, the exclusion of the independents would mean: Overall, the exclusion of the independents would cause a significant shrinkage in offshore oil and gas activity, a reduction in the dynamism of the industry, and a dilution of US. Technological and industry leadership
- 23. What’s Wrong With This Picture? Spain Norway India Malaysia Vietnam Brazil VenezuelChina Angola China CUBA
- 25. Hydraulic Fracturing History First commercial “FRAC” job was conducted in 1947 States Regulate Hydraulic Fracturing More than 1 million wells had been completed using this method by 1988 Estimated that nearly 85% of wells drilled today are completed using hydraulic fracturing.
- 26. Interior Secretary Ken Salazar told a House subcommittee recently that a drilling technique known as hydraulic fracturing could be the “Achilles’ heel” that kills the natural gas industry.
- 27. The Truth About Gasland The Washington Examiner, “Nothing But Hot Air in “Gasland”
- 29. Legacy Lawsuits
- 32. Louisiana State mineral bonuses, Rentals, Royalty, and Severance
- 33. Natural Gas & Oil Pumps up Louisiana’s GDP NO. 1 SOUTH EAST - NO. 5 NATIONPercent Change in Real GDP 2008 - 2009 U.S. Bureau of Economic Analysis
- 34. Projected Economic ImpactHaynesville Shale 2010 - 14
- 35. Louisiana Inland Water Drilling Activity1997 -2011
- 36. South LA Land Drilling Activity 2000 -2011
- 37. North Louisiana Drilling Activity
- 38. Number One Producing Natural Gas Field in the U.S. - 5.5 Billion Cubic Feet Per Day
- 39. Haynesville Shale Competing with other Shale plays
- 40. Will the Tuscaloosa Marine Shale Play be the Next Boom Play in Louisiana?
- 41. Basin by Basin Natural Gas NYMEX Breakeven Prices for 15% ATAX ROR Source: Company Data, Credit Suisse estimates
- 42. Louisiana’s Legal Climate“We’re Not On The Way to Judicial Hell- Are We?” Melissa Landry American Tort Reform Association Report on “Judicial Hellholes”
- 44. LOGA Top Priority LEGACY LAWSUIT ABUSE
- 45. Abusive Lawsuits Against Producers:The LEGACY Process… Plaintiff firm files lawsuit in rural court claiming huge remediation costs, sometimes billions of Dollars Seek court rulings to circumvent Act 312 process Potential for huge verdict leads to settlement DNR and responsible party work out remediation plan at cost far lower than plaintiff firm originally claimed to be needed Plaintiff firm and landowner pocket funds claimed to be needed for remediation Repeat the process with another lawsuit
- 46. Abusive Lawsuits Against Producers:Extent of the Problem Approximately 250 lawsuits More than half filed by one law firm More than 1500 defendants, including 56% of the top 50 producers Most in southern Louisiana, but some in Haynesville Shale area A resurgence in filings – 2010 had the highest number since the 2006 rush to the courthouse to file before Act 312 took effect Source: LDNR data
- 47. “Our membership is due for renewal in March. As a result of the constant litigation we have faced in our fields the owners of our Companies have been steadily divesting our interests in LA. We are about out and planning to end our operations in the near future.”
- 48. Impact on Louisiana Production 56% Affected (2010 Data)
- 50. Act 312 of 2006 Intended to set a clear and fair process to address environmental claims from legacy sites Six Basic Components: Requires timely notice of such litigation to the State Stays the litigation until thirty days after notice is given Permits the State to intervene in the litigation Provides a role for the Office of Conservation with the LDNR in the determination of the most feasible plan for evaluation and or remediation of environmental damage Provides for the payment of all damages for the evaluation or remediation of environmental damages and further provides that the Court shall oversee actual implementation of the plan adjudicated to be “most feasible” Allows the landowner and the State to recover attorney and expert fees, as well as costs from the responsible party or parties.
- 53. Does not take away landowners right to jury trial on the issue of damagesThe Expedited Remediation Act allows operators to come together within 120 days to accept responsibility for remediation to state standards without accepting liability for private damages – ensuring the environment comes first
- 54. 2011 Regular Legislative Session Fiscal Session Industry has a target on its back Lost Inactive Well Incentive in 2010 Horizontal Drilling Incentive is target in 2011 Suspends severance taxes for 2 years or until payout Senate will look at repealing or suspending exemptions through a resolution $1.4 Billion Deficit Governor very clear about exemptions and tax increases
- 55. 2011 Regular Legislative Session Legislation Legacy Lawsuits – HB 563, HB 564, SB 146 Gulf Boundary Extension – SB 145 HS Issues Royalty Prescription – HB 258 Royalty Payment – HB 547 Ultra Deep Unitization – SB 214 Processing Tax – HB 422, HB 436
- 56. The Economic Impact of the horizontal well severance tax Incentive
- 57. CNG Pricing – Louisiana Average - $1.97 GGE Louisiana Gasoline Average - $3.78 ($1.81 more expensive than CNG) Louisiana Diesel Average - $4.02 ($2.05 more expensive than CNG) Louisiana Stations Public Access Open - 5 Baton Rouge – 4 Bossier – 1 Under Construction / In Process - 7 Lafayette, Bossier, Alexandria, Kenner, Grant Parish, Shreveport (2) Municipalities moving to CNG Lafayette – 5 City Busses, 41 Vehicles committed so far Caddo – 15 Light Duty trucks, 17 Sherrif office vehicles Shreveport – 10 Refuse trucks
- 58. CNG
- 59. CNG Next Steps Working group established to develop a strategy to implement statewide CNG plan DEQ, DNR, DOTD, LED, DOA, LOGA (with industry reps) Identify corridors and establish L/CNG stations along the corridor Incentivize station operators to construct stations along corridor in target areas Incentivize fleet operators to convert long-haul trucks to LNG that travel along corridor
- 60. Ben Broussard State of the Industry www.loga.la facebook.com/LouisianaOilGasAssociation iPhone (free): search “Oil & Gas News” @LaOilGasAssoc
Hinweis der Redaktion
- Brief Overview and then look at Federal and State Issues Facing the IndustryAt LOGA, we look at a lot of battles, we look at all of the issues. I can assure you one thing:-Can’t think of a better industryRegardless what happens (things we don’t like, things we want to change) – We are needed. You are needed.Speaking of carrying water…
- The rains came, the snow melted… Now Louisiana has flood waters on our hands.Bonne Carre Spillway opened late last week.1st gate of Morganza Spillway opened at 3:30pm Saturday,Total of 9 are open now.
- Yellow: 15-20ft flood waterGreen: 10-15ft flood waterHouseboat in Atchafalaya, most folks not so lucky.Floodshed info:2 million barrels/day refining capacity2,264 producing wells19,000 barrels/dayNine refineries that represent some 13.7% of U.S. capacity may face problems obtaining crude and shipping finished products.They are NOT planning to shut down, however restrictions on river ship and barge traffic could limit their operationsThough this is a drop in the bucket to how much America consumes per day, Any disruption is enough to throw prices off… Oh & how prices matter…
- Peaks & valleys & ups & downs that our industry has gone through.-Father remembers oil embargo, iranianSeems to be an explanation for every event…Huge Rise in 2008 to 142/bbl – Subprime lending crash -Speculation & demand growth (weak dollar)Many questions remain
- As we are watching oil prices recoverQuestion: What are we going to call this period right now? -China & India causing rise, sucking all demand -Choke points & turmoil in the middle east (Next slide)
- Economy in Japan is also having an impact on increased demand (bikes)OR Will we call this the time when Pres. Obama attacked the US oil and gas industry
- Senator Jim Inhofe (from the great state of Oklahoma) said it very clearly…“This administration admittedly is trying to kill oil & gas by refusing to allow the United States to exploit its abundant natural resources in an effort to drive the country toward green energy.No question about it. We cannot research, make investments without understanding that we are in an unfriendly environment towards oil & gas.End of Inhofe’s quote: “Its just mind boggling…”
- Natural Gas prices are low yet a tad higher…Today’s NATGAS futures are at 4.29.Why higher:-Tsunami & fears of nuclear energy causing natural gas prices to rise slowlySymbiotic Relationship: When oil prices rose in 2008 to 142/bbl, NatGas prices climed with them – avg 7.98 but got as high as 13/mcf
- Domestic rig count – Red is NatGas, Black is Oil. Add them together.Interesting to look at the makeup: 2008/2009: 1,491 nat gas, 379 oilWhy are nat gas prices so low now? All this NatGas drilling has created a glut. You’ll see rigs moving towards oil rich plays. Prices better, better return.
- Rig activity map (Highlight plays, basins.)-Marcellus-Haynesville -Bakken-Eagleford
- Golden age for NatGas:-There’s an abundance of gas. Swimming in it.-Gas will play a key role in meeting the world’s energy needs.-Lower nat gas prices will back out renewables & compete with coal for power generation. -Lower prices are giving a great deal of competition to other power forms.Exciting to me:-Plans to possibly retrofit LNG facilities to liquefy NatGas & export it.How about that: Natural Gas as an American export?
- (Read)Many have been intimidated to get involved with Federal politics.. -Health care bill? 1,000’s of pages – -Sometimes I think these guys treat these bills like the terms of conditions on their iTunes account -Do you accept? Yes or no. (Yes, oh OK).Thankfully we have teams of folks up there monitoring & fighting battles for the industry.
- We still remain off limits on the east & west…Yes we are open, fact is defacto moratorium down there, so we aren’t really open there either.
- He’s talking about all of you.Hard for me to understand his reasoning & how he sees the domestic oil & gas industry. I do know this: They would like to strip away the various incentives that industry has come to rely on. He talked about it in his inaugural address – from day one.Bottom line: Independents (PetroQuest, Stone Energy, Apache) depend more heavily on these incentives to invest. Take them away & you’ll see a change in industry.We will talk more about the independents a little later.
- Macondo. Deepwater Horizon. Moratorium. The president has created unprecedented uncertainty in the GOM.Very difficult for companies to want to invest in the GOM with such unprecedented uncertainty.Hard to believe that for a short time the GOM was considered the most stable of climates in the world (compared to international waters). -
- He says he’s committed to restoring our way of life down here.We keep watching jobs & dollars lost because of Macondo.Fact of the matter: This shouldn’t have happened, wasn’t a mistake – poor engineering, poor design, poor decision making. Colossal disaster30,000 – 40,000 wells drilled in GOMOver 1,298 in deepwater with no incidents. We know how to do it. Technology is amazing out there – its like going to the moon every day. We have that capability to drill safely out there as it is.
- We’ve seen the slowdown in drilling activity…Of course, ensuing Moratorium on deepwater drilling (defacto on Shallow water)Currently up to 30 rigs running in GOM. Still down ½ from prior to Macondo.
- 11 deepwater Permits have been issued in 12 months.Realize this: They haven’t given us anything we didn’t already have.1st two permits were on rigs that were sitting on a well site for almost a year, waiting to go back to work.Shallow water is struggling as well.
- RecentlyPres boasted that oil & gas production is at an all time high: True.EIA Energy Outlook –*in 2011 we will have declined productin by 240,000 bbl/day*2012 another 200,000 bbl/day decline in production because of administrations actionsPresident told the truth, just not the whole truth.Saturday, Pres Obama announced plans to expand production: -GOM Lease sale this year -two in 2010 -Extending GOM leases affected by moratorium -Instructed Salazar to hold lease sale in Alaska’s Nat Petroleum ResereUS Senator Vitter calls them more tactical than meaningful…
- One of the biggest things we worry about: The Economic impact in the gulf in relation to independent oil & gas producers.Brief summary of IHS Global research – this was prior to macondo.Independents are not the shells & the exxons – companies like Stone Energy, PetroQuest. They are all involved in deepwater, more than one would realize.(Read last paragraph word for word).
- Just threw this in there: Find it interesting… this is Cuba, straits of Florida.All these companies situating themselves to drill.
- Huge issue. One of the most important things… I am more concerned about this than anything.We just saw what happened in the GOM because the gulf is regulated by the Govt. that the Pres was able to shut down the GOM.Today HF is regulated by the States. Always has been. -They know the science, geology, they know what it takes to protect water aquifers, its how its always been done.
- (Read)1 Million wells prior to 1988. 85 – 95% wells are HF wells.This has completely changed the whole arena for the energy industry & has been able to move us from being totally dependent on OIL to havingNAT GAS & supplies and reserves for the future. New HF study due out in late 2012. With new Congress, the pressing threat (I.e. Legislation) seems to be gone for now however congress needs to be continually pressed on this issue to rein in any backdoor efforts. Currently states regulate HF. EPA wants to regulate HF under the safe drinking water act & clean water act.
- (Read)They want this to happen. They don’t want to see this industry survive.LOW NAT GAS PRICES = DEATH OF RENEWABLE ENERGY POLICY1,000,000 electric cars. Insane. 286 million cars & trucks.
- Documentary. Really a comedy. No oscar.Created a lot of buzz. Lots of things we can say about it – Washington Examiner Every single thing being pushed by environmental lobbyists in this doc was proven false.(Guy in rural america lights water faucet – toilet joke – it was real. They blamed it on HF. Naturally occuring methane pocket in many rural areas in Water wells)Think about this: If the EPA gets control of the HF process, then one operator makes a mistake & they will say “We need to study this”-Every single well in the US shut down. Literally, just as he did with the Billions of investment in the GOM.That’s why this issue is so huge. Single biggest issue. Its being worked on, studies are being done.
- Love this slide, it tells a story. Importance of our state & TX to the infrastructure of the US.These aren’t lines I’ve drawn in. This is EIA slides.50% of all gasoline & diesel flows through LA pipeline infrastructure.
- Industry impact to our state: This isn’t trade, rebate, barter or deal…Direct dollars into state coffers. 14% of state’s total revenue it receives.
- Bureau of economic analysis.LA #1 in the S.E., #5 in the nation in % change of real gross domestic productReasons being: Haynesville ShaleBillions poured into N LA
- Think about this – Attracting this kind of investment. This is economic development. This is what changed the landscape in N. LA.When things were looking really bad for everyone else, LA had the HS working for the state.
- Inland looking better.Independents won’t be able to afford the GOM much longer. Money will come back inland.There’s no way they can invest additional funds in the gulf knowing what you know.What will the liability spill cap be? Today its $75M, what will it be later?
- Looking better… still dismal compared to the heyday.we’ll talk about this in a bit.
- Rigs up to 148 high, avg 135.Down to 115.
- Adopted HS shale unit.640 acres (sq mile)Each square will have as many as 6 wells drilled on it.Over 20,000 wells drilled when its all said & done. Only a few thousand into that today.Just recently it was named biggest producing nat gas field in US.5 billion cubic feet / dayOne of the local parishes created a new ordinance for roads: Had to be able to drive a BMW down road.Gravel, rural country road. Seldom do you see a BMW in the boonies, but they have them now. Millionaires over night.
- Haynesville is competing with everyone else. Economics are different in the HS.-HS wells are deep & expensive.-11,000 ft, 4,000 ft laterally, some laterals as much as 10,000 ft.
- New one on the block.Not new, we’ve always known about it. Its HF technology, lateral drilling that will make this work. That’s whats changed everything.This will be oil. Leasing is going on, test wells being drilled.
- Lots of numbers here – don’t be confused. Red lines are HS, sweeter spot.Competing.$4 gas, we aren’t in good shape. We need better prices to make it more profitable for our companies.
- Almost dead last in so many areas – believe it or not, an atmosphere such as this makes a very negative impression on economic investment.District Judge chastised me the other day… Truth or impression? Doesn’t matter… its detracting investment.
- We are #2 in paying highest insurance rates.-Most litigious state in US – high insurance rates go hand in handNot to mention hurricanes…
- One of the biggest issues in the state. Huge.Legacy litigation” refers to hundreds of cases filed by landowners seeking damagesfrom oil and gas exploration companies for alleged environmental damage in the wake of thisCourt’s decision in Corbello v. Iowa Production. These types of actions are known as “legacy litigation” because they often arise from operationsconducted many decades ago, leaving an unwanted “legacy” in the form of actual or allegedcontamination.100’s of lawsuits, over 2,000 defendants.Wells we drilled in the 1930’s/1920’s all the way back to 1901 when the 1st well was drilled in the Jennings/Evangeline fields.
- Ask any Louisianian what they’d recommend if an O&G company contaminated property. “Clean it up.”Unfortunately some are choosing to abuse this process through egregious lawsuits.Delay for years the actual assessment & cleanup of any actual environmental damages.Sad part is that most of the money paid doesn’t go to cleanup, rather to pockets of a few lawyers & plaintiffs.I’m not going to go into all of this.
- Used to have 70 to 80 rigs running S. Louisiana, this is why rig count is so low in S. LA.Legacy is such an issue. Very costly. No one wants to be sued in Plaquemines Parish. Most of our companies when served a lawsuit have to say “can I go all the way to the court of appeals” -Some companies cannot afford to bond themselves in case they lose the appeal.
- Difficult for our companies to drill in S. LA. You saw the rig count down in S. LA – You can hardly find land in S. LA that there isn’t one of these lawsuits going on.David Russell, President of McGowan Working Partners, Inc.“It’s not difficult to get insurance in Louisiana, it’s impossible. Recently, after 15 years of coverage, our provider declined pollution liability insurance coverage in the state of Louisiana simply due to the legacy lawsuit issues in the state.”
- Corbello v. Iowa Production - 2002
- Law is being subverted… Plaintiff lawyers file suit, claiming hugely inflated damages. Get a friendly judge to say a different law applies, then they are in the “lawsuit lottery.” Vast sums are acquired in a settlement and payment doesn’t have to be spent on remediation because the Act 312 process was avoided. This scheme is repeated again and again, and there are currently hundreds of these lawsuits in Louisiana.
- Act 312 is not working as intended. Unfortunately a small number of plaintiff attorneys are abusing the Process and delaying cleanup while driving business out with ridiculous claims for damages.Important that Office of conservation having primary jurisdiction over assessment & remediation:Legacy Case #1: Landowner claimed $189M in damages, actual cost of cleanup by OOC: $5MLegacy Case #2: Plaintiff Atty claims $223M in damages, actual cost of cleanup by OOC: $1.4MLegacy Case #3: Plaintiff Atty claims $339M in damages, actual cost of cleanup by OOC: $2MDo I need to continue? This is a modern day shakedown & its driving business out.
- Already into session, folks are looking for money.Lateral well, 2 year severance tax exemption (2 years or payout, whatever comes first). -With these prices, we need the exemption.
- Legacy Lawsuits: Commissioner of Conservation would have total authority over fair assessment & cleanup.
- People want to take away real business creating incentives, what does LOGA do?-Do a study. Make it very clear how business development with incentives works..Current horizontal well severance tax incentive – No severance paid on well for 2 years or payout, whichever comes first.If we were to lose the exemption, we would be less competitive, rigs would move out.
- Fuel of the future. Honestly believe we will see that.Pricing on GALLON of GAS EQUIVALENT, or GGE.Lafayette has facilities. New Orleans, Baton Rouge, Shreveport – soon traverse. Utah.
- KevinMcCotter, CHK – Home PHILL Unit.
- Look at where we’ve been & where we are headed, I think we are very blessed in this state to be in the industry we are in.We’ve got a bright future, but even with bright futures come challenges.The country needs us. Transportation is the key to a working society. That isn’t changing anytime soon.iPhone App – If you have an iphone, take it out & hold it up. Great. -7-10 days we will have our LOGA member directory searchable on the app -NOT YOUR personal information, just the company info (company name, address, web, office number, fax)