2010 Oil and Gas Outlook: Cautiously Optimistic

by Don Briggs, President, Louisiana Oil and Gas Association

As we close the door to 2009, the New Year is looking brighter for Louisiana’s oil and gas community. After a year plagued with uncertainty and price instability, 2010 may prove to be a more promising year.

Here’s the good and the bad. Oil and natural gas prices are steadily improving, climbing from the record declines of last year. Thirty-five dollar oil, and $2.80 natural gas certainly does not work for the industry. With oil prices near $80 and natural gas climbing to $6, the industry’s near future is looking more encouraging.

Have we seen the bottom in drilling activity behind the door of 2009? Yes we have. Drilling activity in South Louisiana crashed to record lows in 2009, however with the recovery of oil and natural gas prices, the industry is gearing up for what looks like a significantly more productive year. In 2009, only 5 inland water drilling rigs were in operation in South Louisiana. Today that number has doubled to more than 11. Additionally, South Louisiana land rigs were at a record low of 9 in 2009. Today that number stands at 12. The Gulf of Mexico rig count was down to a record low of 25, and today remains at 39. And of course, the “diamond in the rough” has been the sustained growth and activity of the Haynesville Shale in North Louisiana. Currently, rigs in operation in the Haynesville have reached a staggering 126 rigs drilling. That’s the good.

As we look toward 2010, there are three major obstacles that will make it more difficult for oil and gas companies to explore in the US.

First, this past week Secretary of the Interior Ken Salazar announced his new reform program for federal oil and gas leasing, requiring more detailed environmental review, more public input and less use of streamline leasing. According to Salazar, “The previous administration’s ‘anywhere, anyhow policy’ on oil and gas development ran afoul of communities, carved up the landscape and fueled costly conflicts that created uncertainty for investors and industry.” Responding to the announcement, American Petroleum Institute Pres. Jack N. Gerard stated, “In what has become increasingly familiar double-talk from this administration, Interior Sec. Salazar today again spoke of the importance of domestic oil and natural gas while making it more difficult to produce.”

Secondly, on December 7th of last month, President Obama unveiled to the world that the U.S. Environmental Protection Agency (EPA) will regulate greenhouse gases. EPA proclaimed in a public statement, that “greenhouse gases (GHGs) threaten the public health and welfare of the American people.” In a letter to the EPA, Governor Jindal responded by saying, “Any consideration for such a comprehensive regulatory scheme belongs in a thoroughly vetted legislative process. There is no doubt that this change will certainly have profound negative economic impacts on the state of Louisiana, as well as the entire country.”

Lastly, the Interstate Natural Gas Association of Americas estimates that nearly 300,000 natural gas wells will be drilled and completed using the technology of hydraulic fracturing by 2030. The oil and gas industry has utilized this technology for nearly 50 years without a single environmental incident. A liberal Democratic majority in Congress and an anti-oil and gas Administration are pushing for EPA to regulate hydraulic fracturing, which is currently under the regulatory authority of the states.

It’s my hope that 2010 be a brighter year. As prices become more stabilized, oil and gas companies in Louisiana are gearing up. However, with the incessant tampering with private industry by the Obama Administration and bureaucrats in Washington, our potentially brighter year could quickly darken.

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