November 2012

Rigs are dropping like flies at the Haynesville shale, down 80 percent from a year-and-a-half ago, but Louisiana oil and gas insiders say the drilling exodus from the North Louisiana site is only a minor concern.

Also of little concern is the growing number of companies pulling operations out of this natural gas-rich vein of dense rock that straddles Louisiana and Texas — largely because drilling costs are higher than many other places (not to mention low natural gas prices) — and moving to new shale hot-spots ranging from North Dakota to the Appalachian Basin.

Photo by Peter Piazza

The current “boom” in North Dakota’s Bakken shale — mainly an oil play — is a good indication of what’s to come, says MidSouth Bank President Rusty Cloutier. His prediction: the U.S. will be energy independent within 20 years.

For the most part, Gifford Briggs, vice president of the Louisiana Oil and Gas Association, agrees.
“The U.S. has the capability to be oil independent, but a lot of things need to happen for us to achieve that goal,” says Briggs.

He says ultimately it will boil down to having what he calls “the right regulatory environment,” in other words, a mass opening of all the nation’s oil and gas reserves, both inland and offshore, to drilling.

“We have the ability, technology, and resources,” says Briggs, “but we’ll have to be able to go after all the reserves.”
Briggs says that means opening “off-limit” areas from Alaska to the eastern Outer Continental Shelf of the Gulf of Mexico.

Even the Bakken shale formation, which stretches down from Canada into North Dakota and Montana, is only partially open to drilling because vast portions of the formation lie underneath federal lands.

Yet, thanks to a more lax regulatory environment, Bakken is cheaper to drill than Haynesville, which means higher profit margins for companies.

“Haynesville is extremely expensive to produce, so companies are shifting to places where they either have the right legal environment, tax environment or the regulatory environment is better, so they can produce at lower costs,” says Briggs.

Haynesville’s rig count has gone from 160 to 40 in less than two years, but Louisiana’s economy, says Briggs, “is still booming.”

Although shales like Bakken, Utica and Marcellus are where companies are going, a large chunk of their money is coming back to Louisiana, where many have satellite offices headquartered here in Acadiana, Briggs notes.

MidSouth’s Cloutier says the move to Bakken and Marcellus also is indicative of oil’s rising popularity. The price of oil is up, and will likely stay up, whereas the price of natural gas has bottomed-out. It, too, is expected to stay that way.

Cloutier says high oil prices are the driving factor behind his prediction that the U.S. will achieve energy independence within two decades.

Cloutier recently met with a group of North Dakota bankers to discuss an odd problem they’re experiencing — too much business.
“What’s happening is the business is astronomical in certain parts of the Dakotas, and the banks have to have the capital to be able to handle the deposit flow, so they’re trying to meet their federal capital requirements,” Cloutier explains.

Cloutier says he also can attest to the profitability Bakken is having for Louisiana, noting MidSouth currently has $20 million in loans directly related to projects there.
“Talk about a boom,” Cloutier says. “We have countless Louisiana companies of all types of services moving products and supplies up there, and there’s a fair amount of labor from here who are working up there. Business is just unbelievable.”

Yet, despite the newfound popularity in domestic oil drilling, natural gas production is by no means over, especially in Louisiana.

According to one of Louisiana’s top economics experts, LSU’s Dr. Loren Scott, the demand for Louisiana-produced natural gas will grow. According to Scott’s 2013 Economic Outlook, presented Oct. 11 during ABiz’s annual Entree to Business breakfast, the increased demand for Louisiana’s gas will mostly come from chemical manufacturers, electricity producers and European exports.

Scott says every chemical company in Baton Rouge has announced plans for expansion, and with the Environmental Protection Agency gung-ho to put a cap on the coal industry, more power companies will begin turning to natural gas.

Europe, however, could be considered a problem to the American natural gas industry. But a more militant “Green Movement” there has resulted in stricter regulations. As a result, Scott says a new trend is unfolding in which American companies are retrofitting import terminals for exportation.

And a number of those are close to home. Retrofitting projects are already being spearheaded by several Louisiana-based companies, including Lake Charles Exports, Cameron LNG, Cheniere Energy and L.C. Future LNG.