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LOGA State of the Industry: Houston, TX


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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. 1. State of the Industry <br />Ben Broussard<br /><br />
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  4. 4. Peaks & Valleys of the US Oil & Gas Industry <br />China/India Demand Growth<br />Subprime Lending Crash<br />Invasion of Iraq <br />Iraq Invaded Kuwait<br />Iranian Revolution<br />Price per Barrel of oil <br />Southeast Asia<br />Economic Downturn<br />US/Russia Cold War<br />Ben Broussard/ LOGA<br />
  5. 5. China/India Demand?<br />Peak Oil?<br />Middle East Crisis?<br />Obama Attack on US Oil & Gas Companies?<br />The New Era?<br />China/India Demand Growth<br />Subprime Lending<br />Recession<br />
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  7. 7. “this administration ADMITTEDLY IS TRYING TO KILL OIL AND GAS”<br />SENATOR INHOFE<br />
  8. 8. Natural Gas Average Annual Prices2000-2011<br />
  9. 9. RIG MAKEUPOilvs.Natural Gas<br />Natural Gas Rigs<br />
  10. 10. OIL<br />US Rig activity Map<br />GAS<br />
  11. 11. A golden age for gas?<br />Gas is set to play a key role in meeting the world’s energy needs<br />Gas glut will peak soon, but may dissipate only very slowly<br />Lower prices could lead to stronger demands for gas, backing out renewables & coal in power generation<br />Source IEA<br />
  12. 12. Federal Issues<br />Access to Resources<br />Investment Incentives<br />Gulf of Mexico<br />Hydraulic Fracturing<br />
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  15. 15. President Obama Continues Efforts to Repeal Oil & Gas Investment Incentives $44 Billion<br />Repeal expensing of intangible drilling cost<br />Repeal deductions for tertiary recovery<br />Repeal percentage depletion allowance for oil and gas wells<br />Repeal domestic manufacturing deduction for oil and gas companies<br />Increase geological and geophysical amortization for independent producers to 7 years <br />
  16. 16. Gulf of MexicoUnprecedented Uncertainty<br />
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  18. 18. Gulf of Mexico Drilling Activity<br />Before Macondo<br />
  19. 19. Gulf of Mexico Permits IssuedPrevious year Avg. vs. Since Moratorium Lifted <br />
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  21. 21. Obama-Salazar Moratorium Has Crippled Domestic Oil Production<br />
  22. 22. The Economic Impact of the Gulf of Mexico Offshore Oil and Natural Gas Industry and the Role of theIndependents <br />SOURCE: IHS GLOBAL<br />81% of all producing Gulf of Mexico leases - Independents<br />46% of the Gulf’s producing deep water leases - Independents<br />1,298 wells drilled in the deep-water GOM - Independents<br />900,000 bbl. a day of oil equivalent (oil and natural gas together) GOM<br />2009, accounted for more than 200,000 jobs - Independents<br />$38 Billion in economic benefit in 2009 – Independents<br />Within the deep water, the exclusion of the independents would mean:<br />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<br />
  23. 23. What’s Wrong With This Picture?<br />Spain<br />Norway<br />India<br />Malaysia<br />Vietnam<br />Brazil VenezuelChina<br />Angola<br />China<br />CUBA<br />
  24. 24. Hydraulic fracturing<br />
  25. 25. Hydraulic Fracturing History<br />First commercial “FRAC” job was conducted in 1947<br />States Regulate Hydraulic Fracturing<br />More than 1 million wells had been completed using this method by 1988<br />Estimated that nearly 85% of wells drilled today are completed using hydraulic fracturing.<br />
  26. 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.<br />
  27. 27. The Truth About Gasland<br />The Washington Examiner, “Nothing But Hot Air in “Gasland”<br />
  28. 28. State Issues<br /><ul><li>Oil & Gas Industry Impact
  29. 29. Legacy Lawsuits
  30. 30. Haynesville Competition
  31. 31. Legislative Session</li></li></ul><li>Louisiana The Aorta of United States<br />
  32. 32. Louisiana State mineral bonuses, Rentals, Royalty, and Severance<br />
  33. 33. Natural Gas & Oil Pumps up Louisiana’s GDP NO. 1 SOUTH EAST - NO. 5 NATIONPercent Change in Real GDP 2008 - 2009<br />U.S. Bureau of Economic Analysis<br />
  34. 34. Projected Economic ImpactHaynesville Shale 2010 - 14<br />
  35. 35. Louisiana Inland Water Drilling Activity1997 -2011 <br />
  36. 36. South LA Land Drilling Activity 2000 -2011<br />
  37. 37. North Louisiana Drilling Activity<br />
  38. 38. Number One Producing Natural Gas Field in the U.S. - 5.5 Billion Cubic Feet Per Day<br />
  39. 39. Haynesville Shale Competing with other Shale plays<br />
  40. 40. Will the Tuscaloosa Marine Shale Play <br />be the Next Boom Play in Louisiana?<br />
  41. 41. Basin by Basin Natural Gas NYMEX <br />Breakeven Prices for 15% ATAX ROR <br />Source: Company Data, Credit Suisse estimates<br />
  42. 42. Louisiana’s Legal Climate“We’re Not On The Way to Judicial Hell- Are We?”<br />Melissa Landry<br /> American Tort Reform Association Report on “Judicial Hellholes”<br />
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  44. 44. LOGA Top Priority<br />LEGACY LAWSUIT ABUSE<br />
  45. 45. Abusive Lawsuits Against Producers:The LEGACY Process…<br />Plaintiff firm files lawsuit in rural court claiming huge remediation costs, sometimes billions of Dollars<br />Seek court rulings to circumvent Act 312 process<br />Potential for huge verdict leads to settlement<br />DNR and responsible party work out remediation plan at cost far lower than plaintiff firm originally claimed to be needed<br />Plaintiff firm and landowner pocket funds claimed to be needed for remediation<br />Repeat the process with another lawsuit<br />
  46. 46. Abusive Lawsuits Against Producers:Extent of the Problem<br />Approximately 250 lawsuits<br />More than half filed by one law firm<br />More than 1500 defendants, including 56% of the top 50 producers<br />Most in southern Louisiana, but some in Haynesville Shale area<br />A resurgence in filings – 2010 had the highest number since the 2006 rush to the courthouse to file before Act 312 took effect<br />Source: LDNR data<br />
  47. 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.”<br />
  48. 48. Impact on Louisiana Production<br />56%<br />Affected<br />(2010 Data)<br />
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  50. 50. Act 312 of 2006<br />Intended to set a clear and fair process to address environmental claims from legacy sites<br />Six Basic Components:<br />Requires timely notice of such litigation to the State<br />Stays the litigation until thirty days after notice is given<br />Permits the State to intervene in the litigation<br />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<br />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”<br />Allows the landowner and the State to recover attorney and expert fees, as well as costs from the responsible party or parties.<br />
  51. 51. The Solution: Expedited Remediation Act (HB 562)<br />What this bill does:<br /><ul><li>Ensures that environment is cleaned up as quickly as possible and encourages drilling investment in Louisiana
  52. 52. Holds companies accountable for remediation without accepting liability for private claims</li></ul>What this bill does NOT do:<br /><ul><li>Does not take away landowner rights to pursue special and additional damages in pending litigation
  53. 53. Does not take away landowners right to jury trial on the issue of damages</li></ul>The 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<br />
  54. 54. 2011 Regular Legislative Session<br />Fiscal Session<br />Industry has a target on its back<br />Lost Inactive Well Incentive in 2010<br />Horizontal Drilling Incentive is target in 2011<br />Suspends severance taxes for 2 years or until payout<br />Senate will look at repealing or suspending exemptions through a resolution<br />$1.4 Billion Deficit<br />Governor very clear about exemptions and tax increases<br />
  55. 55. 2011 Regular Legislative Session<br />Legislation<br />Legacy Lawsuits – HB 563, HB 564, SB 146<br />Gulf Boundary Extension – SB 145<br />HS Issues<br />Royalty Prescription – HB 258<br />Royalty Payment – HB 547<br />Ultra Deep Unitization – SB 214<br />Processing Tax – HB 422, HB 436<br />
  56. 56. The Economic Impact of the horizontal well severance tax Incentive<br />
  57. 57. CNG<br />Pricing – <br />Louisiana Average - $1.97 GGE<br />Louisiana Gasoline Average - $3.78 ($1.81 more expensive than CNG)<br />Louisiana Diesel Average - $4.02 ($2.05 more expensive than CNG)<br />Louisiana Stations<br />Public Access <br />Open - 5<br />Baton Rouge – 4 <br />Bossier – 1<br />Under Construction / In Process - 7<br />Lafayette, Bossier, Alexandria, Kenner, Grant Parish, Shreveport (2)<br />Municipalities moving to CNG<br />Lafayette – 5 City Busses, 41 Vehicles committed so far<br />Caddo – 15 Light Duty trucks, 17 Sherrif office vehicles<br />Shreveport – 10 Refuse trucks<br />
  58. 58. CNG<br />
  59. 59. CNG Next Steps<br />Working group established to develop a strategy to implement statewide CNG plan<br />DEQ, DNR, DOTD, LED, DOA, LOGA (with industry reps)<br />Identify corridors and establish L/CNG stations along the corridor<br />Incentivize station operators to construct stations along corridor in target areas<br />Incentivize fleet operators to convert long-haul trucks to LNG that travel along corridor<br />
  60. 60. Ben Broussard<br />State of the Industry <br /><br /><br />iPhone (free): search “Oil & Gas News”<br />@LaOilGasAssoc<br />