Bill encourages ultra-deep drilling

03 13, 2012 by Houma Courier

The state is considering creating a program that would allow leased lands to be consolidated and operational costs shared for ultra-deep drilling.

While current law already permits this sort of “pooling” for wells 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,” said 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 more frequently is the cost, Louisiana Oil and Gas Association President Don Briggs said.

Whereas drilling a well under the old model might cost $4 million or more, 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 said. “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 hearings and a waiting period, Briggs said the petitioner would be allowed to approach other lease holders inside the unit about paying a proportional share of the drilling operations.

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 of natural gas.

Landowner groups are tracking the program, which allows lease holders to give a “non-consent” to unit deals, meaning they would opt out of paying their share for the ultra-deep rig.

Under this scenario, lease holders would retain mineral rights — just like they would if they participated — but would be strapped with a 300 percent penalty if the well pays off.

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” lease holders.

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 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 involves oilfields that have been damaged or polluted, sometimes by several generations of different operators.

How these fields are restored, and who pays, is at the heart of the debate.

Other oil and gas proposal 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 change the reportable release for a natural-gas distribution line to 1,000 pounds or more.

- House Bill 664, which updates the types of alternative-fuel vehicles that can be used by state agencies.