LA drilling hampered by 'legacy,' LSU report says

03 02, 2012 by The Times-Picayune

Oil and gas drilling in southern Louisiana is lagging behind some other states in part from the threat of so-called "legacy" lawsuits, in which landowners who have leased property for drilling later sue for alleged contamination from oil-field wastes and saltwater, according to a report released this week by an Louisiana State University professor.

Industry officials point to a 2003 lawsuit over site contamination that led to a $54 million award, when the land was worth about $108,000, as having spurred more landowners to file claims for damages.

In some cases, the suits have been filed decades later, and the drop-off in conventional drilling activity has cost the state billions in mineral revenue collections, according to the report by David Dismukes, professor and associate executive director of LSU's Center for Energy Studies

The study updates work originally included in a 2005 report produced for the state Department of Natural Resources and the Department of Economic Development that assessed Louisiana drilling activity and the economic impacts of decreased activity.

The new report estimates that over the past eight years, legacy lawsuits have led to a loss of about 1,200 new wells, costing the state about $6.7 billion in drilling investment, not counting on oil and natural gas production, and the mineral revenues generated by foregone production.

Last year, the House Natural Resources Committee rejected a measure that would have stripped primary jurisdiction over the lawsuits from local courts and given it to the Louisiana Department of Natural Resources.

Oil and gas representatives told lawmakers that the House bill, sponsored by Rep. Page Cortez, R-Lafayette, would expedite cleanups of oil fields that are now the subject of the lawsuits. Supporters of the measure say the history of the suits and the threat of new torts hamper business. Opponents framed the Cortez bill as a way to shield oil and gas firms from liability.

Under the proposed legislation, state officials would have been responsible for overseeing the cleanup and have had more authority over the claims process, including those already filed but lacking an approved plan to evaluate potential environmental damage.

A 2006 law that governs legacy lawsuits essentially held that damages awarded to a landowner for oil-field surface damage did not have to be tied to the land's value and that the landowner was not required to use the settlement payments to clean up the effects of the damage.

Industry officials lauded the report this week and decried the lasting impact felt by the lawsuits. Don Briggs, president of the Louisiana Oil and Gas Association, called the suits "court sanctioned extortion, where there is no need for remediation in most cases."

"The study strips away any doubt about what is going on: Louisiana's poor legal climate toward the oil and gas industry is causing the state to lose out on substantial conventional drilling opportunities and thousands of well-paying jobs to other states, most notably Texas," said Chris John, president of Louisiana Mid-Continent Oil and Gas Association. "I hope the study is analyzed in its entirety, so that the full magnitude of this problem can be understood."