A recent Wall Street Journal article told the story of a Montana geologist-turned-independent oil man who discovered what is now the highest-producing onshore field found in the lower 48 states in the past 56 years. The story line was that, for several years now, major oil companies have taken the approach that there are no more large fields left to find under American soil. The majors left, and wildcatters like Richard Findley took over.
In Louisiana, what seems to have happened is that during the 1990s many of the major oil and gas producers found that their reserves were being disminished, and it was uneconomical for them to continue their onshore operations; overhead was simply too high. Most of them moved to the Gulf of Mexico, looking for new, big finds.
Meanwhile, as in Montana, the 'independents' showed ingenuity and took over the exploration for and production of Louisiana's oil and gas. With lower overhead, new drilling techniques, and that "independent spirit," these men and women could make a profit where the majors could not.
Louisiana's drilling activity outpaced most other states until around 2003. Since then, drilling has fallen well behind. Even with $60-a-barrel oil prices, Louisiana's rig count in south Louisiana is flat. The only area in the state with growth in rigs is in north Louisiana, where gas drillers can't get enough rigs.
Since the prices started rising, Texas and Oklahoma have had a flurry of drilling. Rigs once running in Louisiana, dollars once invested in Louisiana, and operators once making payroll here are now in neighboring states. It's a redistribution of activity-from us to them.
Why the difference? A recent LSU study suggested at least four factors:
Exceptionally high drilling costs, particularly in the coastal zones and offshore waters.
A challenging physical environment primarily in coastal zones. The perception that Louisiana has a difficult regulatory and permitting process.
The perception that Louisiana is a litigious state.
While the state can't do a lot on the first two items, regulators did take number three by the horns. Not only has the Department of Natural Resources reduced the number of permits and red tape, it has also worked with other state and federal agencies to speed permitting and reduce costs. Not perfect. But improving.
On lawsuits, around 200 so-called "legacy lawsuits" have been filed since the first big case of Corbello v. Iowa Production. A typical lawsuit is filed by a landowner against the company who last operated on the landowner's property, but generally anyone who ever drilled there gets brought into the suit. In Corbello, the trial court jury awarded the plaintiffs $33 million, and by the time all the appeals were over, the award totaled almost $80 million. The Supreme Court expressly stated that the plaintiffs did not have to use their award to restore the property.
Again, the state is working to resolve this problem: protect the state's environment and also encourage economic development. Legislation is pending in Louisiana's Legislature to set up a judicial and administrative process through which the responsible party is forced to clean up the environmental damage he left on a landowner's site. The landowner would get his property cleaned up and would be compensated for any other damages; and operators would have some predictability when they decided to drill for oil and gas.
This could be a win-win year for Louisiana. The environment would be cleaner; landowners would be whole; oil and gas operators would be assured that their investments in Louisiana wouldn't draw them into lengthy and costly litigation. But that will only happen if recently introduced legislation becomes law.
(LABI Vice President Ginger Sawyer contributed to this column.)