New Legislator Oil & Gas Orientation

New Member
Orientation
Oil & Natural Gas in Louisiana
by
The Louisiana Oil & Gas Association

January 17, 2012

Thursday, January 12, 12

Who is LOGA?


Who is LOGA?
LOGA (known before 2006 as LIOGA) was organized in 1992 to
represent the independent and service sectors of the oil and
natural gas industry in Louisiana; this representation includes
exploration, production and oilfield services.

Our primary goal is to provide our industry with a fair and
equitable working environment that will enhance the industry.

LOGA is made up of over 1400 individuals and companies operating
in Louisiana


The LOGA Team
Don Briggs Lauren Estopinal
President Government Affairs

Gifford Briggs Ragan Dickens
Vice-President Assist Director of North La

CeCe Richter - Ben Brousard
Assistant to the President Director of Marketing and
Membership
Jodee Bruyninckx
Director of North La


LOGA Members at the Capital
Apache - Chesapeake -
Matt Thompson Kevin McCotter
Ginger Adam (Contract)
BG Group -
Jim Wiggins (Contract) El Paso -
Celeste Hood (Contract)
BHP / Petrohawk -
Tommy Foltz EnCana -
Chris Coulon (Contract) Kevin Bruce
Jim Harris (Contract)
Cheniere -
Jason French Spectra -
Tyron Picard (Contract) Brian Fahrenthold

Questar - Luke Letlow


Associations &
Integrated Companies


Trades and Integrated Cos.
LABI / Energy Council Conoco - Dave Cagnolotti
Ginger Sawyer Celeste Hood (Contract)

LMOGA Exxon - Jeff Copesky
Chris John, Brent Golleher Liz Mangham (Contract)

BP - Karl Connor Shell - Neil Buckingham
CJ Blanche (Contract)

Chevron - Brent Wood
CJ Blanche (Contract)


Oil & Natural Gas in
Louisiana


A Century of History

Jennings Louisiana - The birthplace of
Louisiana’s Oil Industry
First well was drilled in 1901 by Scott Heywood
In the 1930s companies began drilling in
Louisiana “Marshy” areas
1937 - First Offshore Gulf Platform - 14’ water


History cont..
1940s the offshore movement began -
mostly because of a lack of onshore
availability
20 years industry survived in the Gulf
without hurricanes
in the 1960s, 3 major storms hit the
Gulf and the industry survived the test


History cont..

Today we have completed thousands of
wells onshore and offshore
Technology has allowed the development of
resource plays such as the Haynesville
Shale and Deep-Water fields in the Gulf of
Mexico


What does this mean to La.?
Revenues and tax receipts from the oil & natural gas
industry today represents approximately 15% of
Louisiana’s general fund dollars
Over 60,000 direct jobs in the state in 2010
Economic impact in all 64 parishes
Millions paid in Ad Valorem taxes directly to
parishes around the state


Oil & Gas
Nuts & Bolts


“Conventional Play”

Risk level high - as much as 50 -90%

1. Find Zone
2. Reservoir Quality Characteristics
3.Trapping Mechanism
4. Source for Oil and Natural Gas to
Migrate into the Trap
5. If just one of these
Characteristics is missing you have
just drilled a dry hole.


“Un-Conventional Play”
“Resource Play”

The “low to zero risk”
and the size is what
allows a company to
pay high bonuses/acre
and 25% royalty
compared to
conventional play lease
terms of $100/acre and
18.75% royalty.


HORIZONTAL VIDEO


Taxe Rates...
Severance Tax on oil is 12.5% of revenue generated
Severance Tax on natural gas is flat rate X amount
of production
rate determined by prior year average price of
natural gas
Ad valorem is the property tax paid on equipment
LA Constitution states that no other tax shall be
levied on oil/natural gas other than severance


Incentives
Inactive Well (expired) Stripper Well

Deep Well Tertiary Recovery

Horizontal Well

New Discovery Well
(expired)

Incapable Well


Who Regulates the
Industry?


Department of Natural Resources
Secretary Scott Angelle

Appointed by the Governor

preserve and enhance the
nonrenewable natural resources of
the state, consisting of land, water,
oil, gas, and other minerals,
through conservation, regulation,
management and development

Divisions - Secretary, Conservation,
Mineral Resources, Coastal
Management


Office of Conservation

Commissioner of Conservation - Jim Welsh


Sole regulatory authority over the oil and natural gas industry

Issues permits, monitors drilling activities, inspects sites, and handles
remediation and site closure

29B - regulatory remediation standard

Also responsible for the management of the state’s groundwater and surface
water resources


Coastal Management

Stephen Chustz - Acting Assistant Secretary
Responsible for the maintenance and protection
of the coastal wetlands
Mitigation and planning is a major function
of this division


Department of Environmental Quality

Secretary, Peggy Hatch
Regulates air emissions/quality, hazardous
waste and water quality
Oil spills that fall outside of a drill site, will
fall under the DEQ
RECAP - Remediation standard


Areas of
Intense
Activity


Haynesville
Shale


Haynesville Shale
#1 Producing Natural Gas Field in the US
#4 Largest natural gas field in the world
$17 billion - estimated economic impact to local and
state in 2010
$4 billion - estimated household earnings attributed
to the shale in 2010
110,000+ jobs supported by the shale in 2010


Continued..
Wells drilled to a depth of 10,000’ +
Horizontal completion of 3,000’+
Average cost is $10,000,000 per well
Estimated break-even cost is natural
gas @ $3.85/mcf (2010 Credit Suisse report)
174 Units as of 10/30/08
2207 Units as of 12/15/11


CLAIBORNE
CADDOCaddo-Pine Island Field
Haynesville Shale Gas Play
Well Activity Map
Producing Well (13)
Dixie Field Bellevue Field Permitted Well WOC*/Fracturing/
Sentell Field Testing/Other Operations (47)

BOSSIER
Permitted Well
Drilling in Progress (35)
Permitted Well
Not Drilling (65)
Longwood Field 160 Total Wells Permitted
to Haynesville Shale
* Waiting on Completion
220 20
Adopted Haynesville
Shale Unit (174)
Bossier City

20 Shreveport
Sligo Field
WEBSTER
Greenwood-Waskom
Field Cedar Grove Field

Metcalf Field

BIENVILLE
Elm Grove Field
Johnson Branch Field

Caspiana Field Swan Lake
Field

49
Woodardville Field
Thorn Lake Field

Bethany-Longstreet Field
Kingston Field
Holly Field Martin Field
Belle Bower Field

RED
Red River - Bull Bayou Field

North Grand Cane Field
Coushatta

RIVER
Logansport Field Mansfield
Grand Cane Field

Trenton Field

Spider Field

Benson Field
DE SOTO King Hill Field

Pleasant Hill Field
NATCHITOCHES
Well data as of 10/30/08.
NOTE: Data from this map are
not to be used for legal purposes.
SABINE 0 5

Miles
10


Companies in the shale
BEUSA Energy Fossil Operating

BP Indigo Minerals

Camterra Resources JW Operating

Chesapeake Matador Production

Comstock Oil & Gas Petrohawk-BHP Billinton

Devon QEP Energy

Eagle Oil & Gas Samson

ElPaso E & P Shell E & P

EnCana SM Energy

EOG Resources Stroud Petroleum

EXCO Tellus OPerating

Forest Oil XTO (Exxon)


Central
Louisiana
Oil Plays


Central Louisiana
Tuscaloosa Marine Shale / Louisiana Eagle
Ford Shale
Austin Chalk
Very early stages of development
First results are positive
Indigo Minerals well producing 500 barrels/
day out of initial well


Will the Tuscaloosa Marine Shale Play
be the Next Boom Play in Louisiana?


Companies in Central La
Anadarko Goodrich

El Paso Indigo Minerals

EnCana Mid-State Petroleum

Devon Swift

Denbury


Brown
Dense


Brown Dense

Predominantly Northeast La. play
Very early stages of development
Depths range from 8,000’ to 10,000’


Companies in the Dense

Devon
Southwestern


Ultra-Deep
Frontier


Ultra-Deep
South Louisiana Oil Play - Onshore
and Offshore
Wells will mostly be drilled onshore
Wells to be drilled to depths greater than
22,000’
Well costs are estimated at $100
million/well


Ultra Deep
22 -30,000 Feet
Will require different
leasing rules to
incentivize companies
to drill $100 million
wells.


Companies in the Ultra-
Deep Frontier
Freeport McMoran
Plains Exploration & Production
Conoco
Chevron


Gulf of Mexico


Gulf Of Mexico
Gulf is divided into different sections
The Shelf
The Outer Continental Shelf
Eastern OCS (off-limits)
Central OCS
Western OCS


M

South
Atlantic

Western Central Eastern
Gulf Gulf Gulf of
of of Mexico
Mexico Mexico

Straits
of Florida


GoM Facts
161 Active Operators
2,374 Qualified to operate in the Gulf
81% of producing leases - Independents
46% of producing deepwater leases -
independents
1,298 deepwater wells drilled - Independents
Independents accounted for 200,000 jobs
related to GoM in 2009


Hot Topics in the
Industry


Horizontal Drilling
Benefits
30 % reduction in pad site impact
access 60 times more below ground area
makes resource play economics possible


Hydraulic Fracturing
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.

Multiple federally funded studies have
shown that there is no risk associated
with Hydraulic Fracturing


Water Use & Sourcing
Wells that are completed using Hydraulic
Fracturing use millions of gallons of water in the
process
Companies make every effort to use surface water
or non-potable sources when possible - including
expensive recycling methods
All water wells are permitted and registered
through the Office of Conservation to ensure the
protection of vital aquifers around Louisiana


Roads
LOGA member companies have a commitment to working with
local governments to ensure the safety of its roadways during the
development phase of our production.

In the Haynesville Shale, operators came together to work hand in
hand with local officials regarding road repairs, road department
procedures and safety standards for roadways and truck traffic.

LOGA can offer industry coordination for workable solution to
local road issues & concerns.


CNG & LNG- Bridge Fuel
CNG - Compressed Natural Gas
remains in gas form
fleet vehicles, medium duty, short ranged
heavy duty vehicles
LNG - Liquified Natural Gas
compressed under high pressure and low
temp into a liquid form
long ranged, heavy duty vehicles


L/CNG Cont...
2009 - Jane Smith passed legislation to increase the individual
and corporate income tax credit for the purchase of qualified
clean-burning motor vehicle fuel property and for the purchase
of a motor vehicle with qualified clean-burning motor vehicle
property installed by the vehicle's manufacturer
Refundable income tax credit increased from 20% to 50%
for the conversion costs of a vehicle
Refundable income tax credit of 50% for the cost of the
equipment for fueling infrastructure


L/CNG
The
Blue
Boot


L/CNG The Blue Boot
Where we are today
Existing / Under construction
CNG - 9 stations
LNG - 1 station
Planned
CNG - 7 stations


Legislative Issues


Horizontal Severance Tax
Investment Incentive
Qualified wells receive a suspension of severance tax for
2 years or until payout is reached (whichever is the
lessor)
Enacted in 1994
Estimated in 2010 that the state gave up $125.3 million
with the incentive, but gained #367.7 million in
revenue generated from the associated drilling
Simply put - the state gains $2.94 for every dollar of
incentive granted


Legacy Lawsuits
What is a “Legacy Lawsuit”
Lawsuit alleging contamination from
oilfield operations - usually from older
fields
Legacy is derived because all historical
operators are named as defendants in the
suit - in some cases over 30 defendants


Legacy cont.
Over 250 suits currently filed
Original suit was “Corbello”
Landowner awarded $33 Million without a
requirement to clean up
120 acres valued at $108,000
Penalties and interest raised total award to
over $70 million


Legacy Cont.
In 2006 the Legislature passed ACT 312 in attempt
to handle lawsuits and move remediation forward
Since 2006 no remediation plans have been adopted
by the court
District courts have implemented ACT 312
differently than was intended by the Legislature
Insurance companies are now denying insurance to
companies in Louisiana - but not in Texas and
Mississippi


Non-Consent / Risk Charge
When a unit is formed there are often
companies and individuals that hold leases
from royalty owners
Existing owners have options on how to move
forward
Negotiate with operator
Participate in the well (statutory)
Go non-consent (statutory)


If they elect to participate in the well they
will pay their proportionate share of the
well costs and will receive their share of
the well profits equal to their ownership
If they elect to go non-consent, they will
be subject to a risk charge of 200%
once the risk charge has been assessed,
they will receive their share of the well
profits equal to their ownership


Issues
Smaller operators are being squeezed
because they cannot afford to
participate or pay the royalty
Royalty owners are not being paid
timely
Risk charge is not consistent across
all wells in a unit affecting the
economics for those drilling the wells

Legislation
Must be able to first protect the royalty
owners and ensure they are getting paid
Must allow the smaller operators with an
opportunity to have some “skin in the game”
Must create level playing field for all wells
in a unit


Ultra-Deep Unitization
Legislation
Defines Ultra-Deep as structures
encountered below 22,000’
Allows units to be formed based from
seismic data before a well is drilled
Allow for the orderly and ecnonomic
development of the play


Ultra-Deep Unitization
Investment in Ultra-Deep wells, such as the
Davy Jones discovery, is incredible
Current regulations did not contemplate wells
of this magnitude in scope and cost
in order for the play to develop, rules must be
updated to address circumstances around new
technology and plays


Water
2 different water types

Groundwater - water below the surface of the earth

Surface water - water that is either running or not that is contained above
ground

Groundwater - managed by the Office of Conservation -

ownership is determined by the
“rule of capture”

Water wells are to be permitted by OOC

Surface Water -

Not under anyones direct ownership and is the property of the state in trust
for the people of Louisiana

Any citizen of Louisiana has the right to use of the water


Water cont...

Historically, the state has never charged
for use of surface waters (i.e. the
Mississippi River) see R.S. 9:1101
Until recently, there was no mechanism
for the state to charge, even if it would
have wanted to


Water cont...
Early 2010 the Attorney General issued 4 opinions
that claimed the State of Louisiana OWNED the
running waters of the state
if the state OWNED the running waters, they then
must charge FAIR MARKET VALUE for the water
(Louisiana Constitution Art. VII, Sec 14)
However, the state had no mechanism by which to
charge or to receive revenue related from the sale


Water cont...
2010 Legislative Session Responses to AG
Department of Agriculture EXEMPTED agriculture
and aquaculture requirement to purchase water
DNR passed legislation that allowed for companies to
participate in a Cooperative Endeavor Agreement
(Expiring June 2012)
Resolution directed the Groundwater Resource
Commission to study state groundwater &
surfacewater resources and develop a statewide plan


Water cont...!
2012 Legislative Session
Issues
expiring CEA for oil and natural gas industry
results and corresponding legislation from the
GWRC
oil & natural gas industry sole participant in
requirement to purchase water


What this
means to you
and your
district


Questions?


New Legislator Oil & Gas Orientation

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New Legislator Oil & Gas Orientation