Louisiana top crude producer

11 01, 2011 by The Advocate

Louisiana’s oil and gas industry?supports 310,217 jobs and generated more than $16.1 billion in annual household earnings for the state, according to a study released Monday by the Louisiana Mid-Continent Oil and Gas Association.

The survey includes the impact of oil and gas extraction, refining and pipelines.

The study shows that Louisiana is the United States’ No. 1 producer of crude oil, including production from federal waters; No. 2 in petroleum refining capacity; and No. 3 in natural gas production.

“Some people have asked me ￉ what if we hadn’t been so lucky as to have all this oil and gas under our state?” economist Loren Scott said at the weekly Press Club luncheon.

“Well, it’s very easy to figure out what we would look like,” Scott said. “All we have to do is look one state to the east. We’d look just like Mississippi.”

Scott said every parish in Louisiana has at least one person working in the oil and gas industry, and Lafayette Parish has close to 15,000.

The industry’s jobs pay well, Scott said. For those in the extraction sector, the average weekly pay is close to $2,000; refinery workers average around $1,750; and pipeline workers around $1,500 a week.

The average weekly pay for a manufacturing job is around $1,100 a week, he said.

The study says the three oil and gas-related industries paid local governments $298 million in taxes in 2009. In addition,?the $16.1 billion the industries generated in household earnings added around $707 million indirectly to local governments’ coffers in fiscal year 2010.

Scott said one of the major reasons Mid-Continent commissioned the study was to let people know the importance of the state’s oil and gas industry, which he said is now “very much under attack” by the Obama administration.

One component of the president’s jobs bill called for the putting a $41 billion tax on the industry, Scott said.

The Obama administration has proposed rolling back or repealing eight tax breaks that benefit the oil and gas industry. The administration estimates this would generate $41 billion in taxes over 10 years.

Scott said the exemption for intangible drilling costs, which includes everything but the actual equipment, is vital for independent oil and gas companies.

PetroQuest, Stone Energy and Devon Energy use that exemption to raise capital from investors, and that allows the companies to drill wells, Scott said.

According to investopedia.com, intangible drilling costs account for 65 percent to 80 percent of drilling costs, and the expenses are 100 percent deductible in the year they are incurred.

Other obstacles the industry faces include:

•The U.S. secretary of the interior’s mandate that the industry cap 3,500 nonproducing wells and dismantle 650 platforms in the Gulf, Scott said. It will cost around $3.8 billion to perform what he called a completely unnecessary task.

•Federal drilling permit applications, once less than 100 pages, are now thousands of pages long, and the new regulations enacted in the wake of the BP Macondo well disaster in the Gulf of Mexico are boosting costs.

The rig explosion killed 11 men and dumped more than 4 million barrels of oil into the Gulf. Two federal investigations say BP bears most of the blame for the disaster.

Scott said the U.S. secretary of the interior estimates the new regulations will cost $1.4 million per well. The study also cites?a Grant Thornton survey of industry members who estimate the added costs at a much higher level, around 20 percent of drilling costs.

For example, the BP Macondo well cost $100 million to drill; 20 percent of drilling costs would be $20 million.

Scott said the added regulations and the deepwater drilling moratorium pushed 11 drill ships out of the Gulf of Mexico, along with thousands of direct and indirect jobs connected to the ships.

Chris John, president of Louisiana Mid-Continent, said the drilling permit process takes much longer now, in part because the federal agencies overseeing the process lack the manpower needed.

He said he doesn’t expect that to change quickly, whether a Democratic or Republican administration is in place.

It’s likely that the industry will have to pay additional fees to fund those new positions, John said.

Meanwhile, Scott said two very positive developments are under way in two oil-bearing shales in Louisiana: the Tuscaloosa Marine Shale, which crosses the middle of the state; and the Lower Smackover in northwest Louisiana.

Five independent energy firms have leased more than 1 million acres in the Tuscaloosa Marine Shale, which is thought to contain 7 billion barrels of oil, Scott said.

“I don’t think they would have purchased a million acres had it not been that they thought that this was going to work out,” Scott said.

Scott said he has seen one estimate that 30 to 42 rigs would be working next year in the Tuscaloosa Marine Shale. That works out to between 5,400 and 7,200 jobs, he added.

The Haynesville Shale, a natural gas formation, started out in a similar fashion and grew to 143 rigs, he said.

The Lower Smackover, where energy companies are also leasing and drilling, could potentially be very important to northwest Louisiana, Scott said. Activity in the Haynesville, a deep, natural gas-only play, is decreasing as energy companies target less expensive areas and those that also produce more lucrative oil and liquids.