“Cautiously Optimistic”

The mood of the oil and gas industry today is what I would call “cautiously optimistic.”

From the low forties this time last year, oil prices have steadily climbed to the low eighties, a 100% increase. Of course, the bottom of the low forties was a cliff dropper from $147 a barrel in 2008. Regardless, $80 oil prices help to build the coffers for exploration budgets.

As well, natural gas prices have climbed to around $4.30 per Mcf from a low of $2.90 this past summer, a 48% increase. Again, $4.30 per Mcf is a long way from the record setting $13 per Mcf in mid-2008.

Another contributor to the optimism within the industry is that drilling activity has significantly increased following the climb of oil and natural gas prices. Historically, drilling activity (rig count) will mirror the up and down trends of oil and natural gas prices. Our industry is a price driven industry. Simply put, higher prices mean more drilling activity, while lower prices bring about lower drilling activity.

Louisiana’s current rig count in mid-March is 209 rigs, compared to 132 rigs drilling this time last year. That’s a 58% increase and a noteworthy sign of growth. Furthermore, the total domestic rig count today is approximately 1,410 rigs, up from 1,085 rigs in March of 2008. That represents a 38% increase from mid-March of 2008.

Louisiana’s recovery in drilling activity has consistently outperformed all US drilling activity. Individually, Louisiana has outperformed all of the major producing states. Of course, the Haynesville Shale activity in Northwest Louisiana is the shinning star responsible for this growth. Currently, there are 138 rigs drilling in NW Louisiana, up from a total of 73 rigs drilling this time last year. That represents an astounding 89% growth in rig activity. Projections for continued growth in rig activity for the next six months estimate that another 20 rigs could be added to the NW Louisiana fleet.

Another bright spot in Louisiana’s rig activity is in the South Louisiana Inland Waters. Approximately a year ago, the inland water drilling activity hit an all-time historic low of 5 rigs, causing a near hysteria within our industry. Today, there are 15 rigs drilling in the inland waters of Louisiana. This ten drilling rig increase has resulted in the creation of nearly 1,800 direct and indirect jobs.

As for Gulf of Mexico drilling activity, there are currently 42 rigs in operation. Over the past year, this number has remained consistent. It’s important to note that the 42 active rigs in operation today are up from an all-time historic low of 25 rigs this past summer.

A further encouraging statistic comes from the recent MMS Lease Sale 213 that encompassed bids from 77 oil and gas companies and raised $949 million in revenues, up 34% from Lease Sale 208 in the Central Gulf of Mexico in March of 2009.

When you step back and look at the big picture, you cannot help but feel optimistic about the oil and gas industry in our state and country. Though I do not want to throw optimism to the wind, there is more to this picture.

Several game-changing issues that stand in the way are the potential regulation of Hydraulic Fracturing by the EPA, EPA regulating greenhouse gases, the President’s budget stripping industry of incentives, and cap and trade. Although the future of our industry seems bright, we all must remain cautiously optimistic with these detrimental issues on the table.

Don Briggs is the President of the Louisiana Oil & Gas Association.

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