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New Legislator Oil & Gas Orientation


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Presentation was given to the newly elected members of the Louisiana Legislature.

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New Legislator Oil & Gas Orientation

  1. 1. New Member Orientation Oil & Natural Gas in Louisiana by The Louisiana Oil & Gas Association January 17, 2012Thursday, January 12, 12
  2. 2. Who is LOGA?Thursday, January 12, 12
  3. 3. 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 LouisianaThursday, January 12, 12
  4. 4. 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 LaThursday, January 12, 12
  5. 5. 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 LetlowThursday, January 12, 12
  6. 6. Associations & Integrated CompaniesThursday, January 12, 12
  7. 7. 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)Thursday, January 12, 12
  8. 8. Oil & Natural Gas in LouisianaThursday, January 12, 12
  9. 9. 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’ waterThursday, January 12, 12
  10. 10. 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 testThursday, January 12, 12
  11. 11. 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 MexicoThursday, January 12, 12
  12. 12. 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 stateThursday, January 12, 12
  13. 13. Oil & Gas Nuts & BoltsThursday, January 12, 12
  14. 14. “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.Thursday, January 12, 12
  15. 15. “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.Thursday, January 12, 12
  16. 16. Thursday, January 12, 12
  17. 17. HORIZONTAL VIDEOThursday, January 12, 12
  18. 18. 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 severanceThursday, January 12, 12
  19. 19. Incentives Inactive Well (expired) Stripper Well Deep Well Tertiary Recovery Horizontal Well New Discovery Well (expired) Incapable WellThursday, January 12, 12
  20. 20. Who Regulates the Industry?Thursday, January 12, 12
  21. 21. 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 ManagementThursday, January 12, 12
  22. 22. Office of Conservation Department of Natural Resources Commissioner of Conservation - Jim Welsh Appointed by the Governor 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 resourcesThursday, January 12, 12
  23. 23. Coastal Management Department of Natural Resources Stephen Chustz - Acting Assistant Secretary Responsible for the maintenance and protection of the coastal wetlands Mitigation and planning is a major function of this divisionThursday, January 12, 12
  24. 24. Department of Environmental Quality Secretary, Peggy Hatch Appointed by the Governor 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 standardThursday, January 12, 12
  25. 25. Areas of Intense ActivityThursday, January 12, 12
  26. 26. Haynesville ShaleThursday, January 12, 12
  27. 27. 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 2010Thursday, January 12, 12
  28. 28. 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 12/15/11Thursday, January 12, 12
  29. 29. 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 10Thursday, January 12, 12
  30. 30. 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)Thursday, January 12, 12
  31. 31. Central Louisiana Oil PlaysThursday, January 12, 12
  32. 32. 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 wellThursday, January 12, 12
  33. 33. Will the Tuscaloosa Marine Shale Play be the Next Boom Play in Louisiana?Thursday, January 12, 12
  34. 34. Companies in Central La Anadarko Goodrich El Paso Indigo Minerals EnCana Mid-State Petroleum Devon Swift DenburyThursday, January 12, 12
  35. 35. Brown DenseThursday, January 12, 12
  36. 36. Brown Dense Predominantly Northeast La. play Very early stages of development Depths range from 8,000’ to 10,000’Thursday, January 12, 12
  37. 37. Companies in the Dense Devon SouthwesternThursday, January 12, 12
  38. 38. Ultra-Deep FrontierThursday, January 12, 12
  39. 39. 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/wellThursday, January 12, 12
  40. 40. Ultra Deep 22 -30,000 Feet Will require different leasing rules to incentivize companies to drill $100 million wells.Thursday, January 12, 12
  41. 41. Companies in the Ultra- Deep Frontier Freeport McMoran Plains Exploration & Production Conoco ChevronThursday, January 12, 12
  42. 42. Gulf of MexicoThursday, January 12, 12
  43. 43. Gulf Of Mexico Gulf is divided into different sections The Shelf The Outer Continental Shelf Eastern OCS (off-limits) Central OCS Western OCSThursday, January 12, 12
  44. 44. M South Atlantic Western Central Eastern Gulf Gulf Gulf of of of Mexico Mexico Mexico Straits of FloridaThursday, January 12, 12
  45. 45. 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 2009Thursday, January 12, 12
  46. 46. Hot Topics in the IndustryThursday, January 12, 12
  47. 47. Horizontal Drilling Benefits 30 % reduction in pad site impact access 60 times more below ground area makes resource play economics possibleThursday, January 12, 12
  48. 48. 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 FracturingThursday, January 12, 12
  49. 49. 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 LouisianaThursday, January 12, 12
  50. 50. 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.Thursday, January 12, 12
  51. 51. 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 vehiclesThursday, January 12, 12
  52. 52. 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 vehicles 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 infrastructureThursday, January 12, 12
  53. 53. L/CNG The Blue BootThursday, January 12, 12
  54. 54. L/CNG The Blue Boot Where we are today Existing / Under construction CNG - 9 stations LNG - 1 station Planned CNG - 7 stationsThursday, January 12, 12
  55. 55. Legislative IssuesThursday, January 12, 12
  56. 56. 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 grantedThursday, January 12, 12
  57. 57. 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 defendantsThursday, January 12, 12
  58. 58. 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 millionThursday, January 12, 12
  59. 59. 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 MississippiThursday, January 12, 12
  60. 60. 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)Thursday, January 12, 12
  61. 61. Non-Consent / Risk Charge 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 ownershipThursday, January 12, 12
  62. 62. Non-Consent / Risk Charge 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 wellsThursday, January 12, 12
  63. 63. Non-Consent / Risk Charge 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 unitThursday, January 12, 12
  64. 64. 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 playThursday, January 12, 12
  65. 65. 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 playsThursday, January 12, 12
  66. 66. 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 waterThursday, January 12, 12
  67. 67. 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 toThursday, January 12, 12
  68. 68. 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 saleThursday, January 12, 12
  69. 69. 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 planThursday, January 12, 12
  70. 70. 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 waterThursday, January 12, 12
  71. 71. What this means to you and your districtThursday, January 12, 12
  72. 72. Questions?Thursday, January 12, 12