A Houma lawmaker’s bill aims to incentivize ultra-deep operations.
The state is considering creating a program that would allow leased lands to be consolidated and operational costs shared for ultra-deep drilling operations.
While current law permits this sort of “unitization” or “pooling” to well exceeding a true vertical depth of 15,000 feet, the proposal from House Natural Resources Chairman Gordon Dove creates a new category for those eclipsing 22,000 feet.
“This is a new horizon for the oil and gas industry in Louisiana,” says Dove, R-Houma. “It could be just what we need to encourage investors to go deeper.”
Lawmakers will vote on House Bill 504 during the coming weeks, but it will first be heard by the committee Dove oversees.
One reason oil companies aren’t drilling ultra-deep wells onshore and off more frequently is the cost, says Louisiana Oil and Gas Association President Don Briggs.
Whereas drilling a well under the old unitization model might cost upwards to $4 million, he said ultra-deep operations probably start in the neighborhood of $100 million.
“There’s a lot of risk. It costs a lot of money and you could still lose the well,” Briggs says. “But the payoff is huge.”
Dove’s legislation would allow an oil company or landowner to petition the state Department of Natural Resources to create units or pools of up to 9,500 acres.
If the petition is approved, following public hearing and waiting period, Briggs says the petitioner would be allowed to approach the other lease holders inside the unit about paying for their proportional share of the drilling operations.
“At the end of the day, every lease holder would have an interest in that revenue stream,” Briggs says.
Energy observers predicted years ago that it would take major advances in ultra-deep drilling to really open up prospects like Davy Jones, which has been defined so far by activity anchored south of the Marsh Island area.
The whole prospect, though, runs the entire central coastline and is expected to have massive production potential — to the tune of 2 trillion cubic feet or more natural gas.
“This is a new horizon for the oil and gas— State Rep. Gordon Dove, R-Houma
industry in Louisiana. It could be just what we need to encourage investors to go deeper.”
Landowner groups are tracking the program, which allows leaseholders to give a “non-consent” to unit deals, meaning they would opt out of paying their proportional share for the ultra-deep rig.
Under this scenario, lease holders would retain their mineral rights — just like they would if they participated — but would be strapped with a 300 percent penalty in terms of receiving their piece financial interests.
In other words, the petitioner would be allowed to recoup 100 percent of his investment, three times over, before being forced to pay interest and royalties to any “non-consent” leaseholders.
While Dove will be directing the legislation on the House side, Senate Natural Resources Chairman Blade Morrish, R-Jennings, has a duplicate version in Senate Bill 469.
In related policy filings, Sen. Bret Allain, R-Franklin, has introduced Senate Bill 525 to add a new layer of transparency for lease holders connected to oil and gas activity.
His Senate Bill 525 would require any operator looking to explore or test to notify any landowners who would be “affected by the well” at least 30 days before drilling operations commence.
New legislation related to the oil and gas industry is being kept to a minimum this session, according to lobbyists.
Instead, most of the traditional players are focused on legacy-related bills, of which there are now more than 40 pending debate.
The legacy issues involve oilfields that have been damaged or polluted by sometimes several generations of different operators.
How these fields are mitigated, and who pays, is at the heart of the debate.
Other oil and gas proposals filed so far include:
·House Bill 347, which would dedicate mineral revenues from oil and gas production in and around Lake Bistineau to the operation and management of the lake.
·House Bill 561 and Senate Bill 344, which provides that a reportable release for a natural gas distribution line is 1,000 pounds or more.
·House Bill 664, which updates the types of alternative fuel vehicles that can be used by state agencies.