Over-reaching by federal regulators and local governments could stop the Tuscaloosa Marine Shale from ever booming in Louisiana and shift drilling activity to the Mississippi side of the oil-rich formation, Louisiana Oil and Gas Association Vice President Gifford Briggs said Thursday.
The Environmental Protection Agency has been trying to take control of the hydraulic fracturing permitting process from state governments for a long time, Briggs said.
The energy industry fears that any allegation of a problem could result in an instant ban on hydraulic fracturing, the same way that federal regulators placed a moratorium on offshore drilling after the BP well disaster.
“That would give the federal government the ability to shut down the oil and gas industry in the state with the swipe of a pen,” Briggs said. “That is very terrifying, and that is a very real concern that industry has.”
Briggs spoke at the Greater Baton Rouge Industrial Alliance’s annual meeting.
Most wells are drilled using hydraulic fracturing, where millions of gallons of water, mixed with sand and chemicals, are forced underground under high pressure to crack rock formations and release natural gas or oil. Environmentalists and some residents say the practice could contaminate surface water and water tables. There are also concerns about the enormous amount of water used in the process — a Colorado State University study found the average horizontal well in that state used 2.7 million gallons of water — and the effects of disposing wastewater from fracking.
Briggs said federal regulation would likely increase the time and the cost involved in drilling a well.
Meanwhile, Louisiana’s continuing budget shortfalls could mean the end for the severance tax break that drillers get for horizontal wells, Briggs said.
In 1994, Louisiana made horizontal wells exempt from severance taxes until a company recovers the cost of the well or for 24 months, whichever happens first.
At the time, the technology was fairly new, and legislators were trying to encourage drilling. In 2010 and 2011, the exemption meant that Louisiana didn’t collect around $300 million in severance taxes.
The energy industry says it creates billions of dollars in economic activity and investment, which generates tax dollars in other ways.
The Haynesville Shale, for example, had $31 billion in economic impact during the past two years, creating more than 60,000 jobs, Briggs said.
Briggs said he expects the tax break will be the No. 1 target in the next legislative session, even though Louisiana’s economy is heavily dependent on the oil and gas industry.
Drilling is already practically impossible in the Haynesville Shale, due to depressed natural gas prices, Briggs said. Without that incentive, the cost of drilling goes up incredibly, making it even less likely that drilling will take place, and the same goes for the Tuscaloosa Marine Shale.
Finally, drilling companies face problems at the local government level, Briggs said.
Once the Haynesville Shale got going, every local government wanted to create its own well permits, fees, road-use taxes and everything else to capitalize on the boom, Briggs said.
“And I’m sure those parishes in the Baton Rouge area, when they looked at what was going on, they said, ‘Well if we can just get that kind of activity and that kind of economic growth in our area we would do anything,’ ” Briggs said. “Well the Tuscaloosa shows up, and now all of a sudden we’ve got local ordinance issues in every parish that we’ve never had before.”
The local issues vary wildly, Briggs said.
In Beauregard and Vernon parishes, there were efforts to ban hydraulic fracturing. Other local governments have asked drillers to disclose the chemicals used in hydraulic fracturing, he said.
Many of the proposed ordinances duplicate state regulations, while others would make drilling companies repair road damage; the industry is willing to pay for repairs, but oil and gas companies don’t have expertise in road repair.
Briggs said all of these challenges could mean that the much-anticipated Tuscaloosa Marine Shale boom might never materialize.
Drilling companies have an option, he said. They can just move their operations to the Mississippi side of the formation.
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