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Louisiana Oil & Gas Facing 'Very Difficult Times' Not Seen Since 1980s

Louisiana's oil and gas industry is in the midst of a crisis it hasn't seen since the 1980s, and things could get worse in the months ahead if commodity prices remain low for an extended period of time, according to Don Briggs, president of the Louisiana Oil and Gas Association.

"We've already seen several bankruptcies," Briggs said in an interview with NGI's Shale Daily on Tuesday. "Companies that are highly leveraged in a downturn like this are looking at [their options, which could include] Chapter 11. And if we have a continued period of time where this environment we're in lasts for six to eight to 10 months, we will certainly see more. These are some very difficult times.

"There are companies looking for acquisitions and others looking for buyers. That's a normal process when you're going through a downturn like this. It's very much like what happened in the mid-80s. At the beginning, we didn't compare this downturn to that one, but in a lot of ways they are very similar."

On Monday, the Organization of the Petroleum Exporting Countries (OPEC) -- locked in a struggle with U.S. shale oil producers (see Shale DailyJuly 31;May 18) -- signaled that it may meet in the near future to discuss low oil prices and adopt strategy to give them a boost. News that the cartel could meet lifted West Texas Intermediate crude oil prices to $49.20/bbl on the Nymex exchange on Monday, but the price was down to $45.41/bbl in midday trading on Tuesday.

But Briggs said uncertainty over how much oil and gas Iran -- an OPEC member emerging from crippling sanctions to rein in its nuclear program (see Daily GPIJuly 15) -- and Russia will produce could keep prices low.

"The question is going to be just how long the Saudis are going to hold out," Briggs said, adding that the 12-nation cartel "has never been able cut production back in the past. They all cheat on each other, and everybody knows that."

Meanwhile, Briggs said that while U.S. crude oil production is down 200,000 b/d from April, it remains high -- climbing from 9.2 billion b/d last November to 9.7 billion b/d in April, then settling to 9.5 billion b/d in July. In Louisiana, based on oil and gas production during the first five months of 2015, Briggs estimates that full-year production will total 60 million bbl and 2.25 Tcf, respectively. The state produced 2.9 Tcf in 2012.

"We've slowed down some, even though we're adding more rigs," Briggs said. "We'll see some production decline, but I don't think we're going to see that much. We will have to see sustained $40 oil for some time to bring our production down severely."

According to Briggs, there are 29 rigs currently deployed in North Louisiana, most of which (about 22) are targeting the Haynesville Shale, with the remainder in the Cotton Valley (see Shale DailyMarch 16). By comparison, that part of the state had 31 rigs deployed in 2014.

But rig counts in other parts of the state have been cut more severely. Briggs said only nine rigs are currently deployed on land in South Louisiana (down from 19 in 2014), while four rigs are in inland waters (down from 10 in 2014). The number of rigs in the federal Outer Continental Shelf fell from 56 in 2014 to 29 currently. Briggs said there was currently no activity in the Tuscaloosa Marine Shale (see Shale Daily, Aug. 28).

The number of drilling permits issued in Louisiana has also fallen off. According to Briggs, for the first seven months of 2015 a total of 390 permits were issued, down 55% from 868 permits over the same time frame in 2014. Of the 2015 total, 167 permits have been issued in three parishes in the north: Caddo, DeSoto and Lincoln.

None of that bodes well for the state of Louisiana, which depends on taxes levied on the oil and gas industry for 14% of its state budget. According to Briggs, the state loses $12.5 million for every dollar WTI prices fall.

"We just faced a $1.7 billion deficit, and now we've got another $800 million deficit and in 2017 it should be another $1.7 billion deficit," Briggs said. "We've got a lot of financial issues in the state that are going to have to be addressed with a new governor and legislature."

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