[UNITED STATES] New discovery leads to riches and concerns. Gas boom or bust?
Published | 04-May-2008
The Haynesville Shale in northwest Louisiana is being described as one of the richest fields of natural gas ever discovered in this region. But most experts and those connected to the industry agree it's too early to say if the discovery will transform the landscape and economy of parishes that sit atop it.
The shale's boundaries are still up for interpretation. But the hot zones appear to include all of DeSoto Parish, the mid to southern regions of Caddo and Bossier parishes, the southern tip of Webster, the western end of Bienville Parish, most of Red River Parish, the upper parts of Sabine and Natchitoches parishes and sections of East Texas.
If the shale holds the amount of natural gas that is being predicted, it could mean millions for some landowners, a boom in the natural gas production business in this region, and a trickle-down bounty for communities, schools and others.
"The economic impact will be absolutely monstrous if it's as big as it can be," said Don Briggs, president of the Louisiana Oil and Gas Association.
What if the Haynesville Shale turns out to overshadow the East Texas Barnett Shale, which until now has been the granddaddy of all natural gas fields?
"We don't know how that will look. It's going to take a little time," Briggs said. "However, there's obviously enough evidence with the preliminary test that certainly has sparked an immense fever of excitement about drilling in the Haynesville Shale, and it could be very big. The economic impact to the northwest part of the state and the state of Louisiana will be very substantial."
He added: "I think ... you will see at least 70 rigs running up there next year. That's a good number, with about 40 running now. You'll see that almost double. Every rig has a direct employment rate of 184 jobs, so indirectly you're talking about a lot of new employment, sales taxes to the parishes. You're talking about royalty payments to the landowners and you're talking about leasing to the landowners."
The need for more energy in the United States is behind the push to explore these natural gas fields. Louisiana is a net consumer of natural gas, consuming all of what's produced in state.
"We have a tremendous need for it with all of the petrochemical industry that we have. That's a power source. ... The heart of the natural gas industry flows through all of Louisiana and flows through the rest of the country. Twenty-five percent of all natural gas for the country flows through Louisiana," Briggs said.
It could take several years before the potential, or lack thereof, of the Haynesville Shale is fully realized. Drilling likely will shift from the standard vertical wells to more expensive horizontal wells, requiring more manpower, equipment, expertise and time. Predictions are it will take another year or so before knowing if it's a viable commercial opportunity.
But in the interim, the quick influx of lease bonus checks probably means new homes, cars and shopping sprees.
Still, the frenzy has landowners already in a quandary. Some who snapped up early lease offers before word of the Haynesville Shale leaked out are kicking themselves for accepting what they now believe were low payments.
"I saw my neighbors were getting not so good deals so I decided to start people talking," said Stonewall area property owner Kassi Fitzgerald, who on April 26 led an informal gathering to share what she learned through her own research. "I'm concerned about the small landowner."
The registered nurse expected only her neighbors would show up. The 300 to 400 people who descended upon Stonewall were evidence of the interest. Another 500 to 600 people turned out for a separate seminar led by a Texas oil and gas consultant that afternoon near Mansfield.
The announcement
The race for the play - an oil and gas industry term for staking out opportunity - quietly has been under way for about two years with one company, Oklahoma-based Chesapeake Energy, putting more than 200,000 acres in northwest Louisiana under lease with plans to add another 300,000 acres. Industry officials say another company, Cubic Energy, has been drilling on the shale for four years.
With Chesapeake ahead in the play for land, other companies are wasting little time catching up. Petrohawk Energy Corp of Houston has acquired more than 70,000 acres in northwest Louisiana.
Other companies snatching up lease acreage include Encana, Questar, Camterra, Fossil Operating and Shell Western, according to information from the Louisiana Office of Conservation. An informal list at the DeSoto clerk's office adds Comstock, El Paso, Pin Oak, Sun Coast, Audubon Gas and Winchester.
The Louisiana Office of Conservation will not weigh in on the natural gas leasing fever, Commissioner James "Jim" Welsh said. The state office issues drilling permits and holds public hearings to establish production units but it does not regulate leasing activity, the location or the payouts.
"The companies furnish to us what they are required to furnish. A lot of the information that's being circulated right now, we can't verify," Welsh said.
That's one of the issues that makes the Haynesville Shale a still unknown. With no independent verification of the significance of the underground natural gas reserve, the general public, and more specifically landowners, are relying upon industry officials for information.
Well operators are understandably guarded about their production efforts and thus the potential commercial aspect. Information gathered in the test holes is proprietary. Companies do not have to begin reporting production numbers to the state until after the well is completed, its infrastructure is in place and the harvesting begins. Sometimes that can take two months, said Todd Keating, Office of Conservation engineering director.
All is not rosy
Quick riches and visions of bulging bank accounts are foremost in the minds of many. But some folks in Frierson don't see dollar signs. Instead, it's the opposite end of the rosy picture - the belching machines, congested traffic, bright lights and unexplained rumblings that well activity brings.
And the prospect of even more wells popping up across DeSoto Parish only opens the door to the potential of more problems. More than two dozen Frierson families are only four months removed from a well explosion that kept them from their homes between Christmas and New Year's.
"We're afraid of what's going to happen. ... We thought we could sell and get out of here. But we contacted an appraiser and she said it's definitely going to be a deduction because of what's in the back yard. So we probably couldn't get for it what we owe. We benefit absolutely none from what's going on. Our property is devalued," said Dawn Williams, whose family was one of those displaced by the well explosion on Stonewall-Frierson Road.
In November, Interstate 10 near Baton Rouge was closed for more than a week after a well blew. Proposed legislation that would have prohibited new drilling within 1,000 feet of interstates has been killed.
However, a moratorium restricting new drilling operations within a quarter-mile of interstates is in effect until the end of May. An ad hoc committee is working under state conservation office commissioner Jim Welsh's direction to come up with drilling safety regulations. Nothing has been finalized to this point, Welsh said.
Fitzgerald, who hopes to organize her Stonewall area neighbors in their dealings with the oil and gas companies, also cautions those who sign leases to include clauses that will address safety concerns, such as fencing and the location of access roads. She has suggested that photographs be taken of the house and property so that it can be restored if damage occurs.
"We just need to stop and think, talk to our neighbors. We don't need to get so overly greedy that we forget to look at the whole picture," Fitzgerald said.
Billy K. Lemons, principal consultant with Resource Analyt and Management Group of Nacogdoches, Texas, believes it's important to remember that the "oil and gas industry is not our enemy. Much to the contrary is true."
"It takes two to tango, and we are strong believers in free enterprise and the free market system. We champion those ideals, and we admire anyone who is brave and determined enough to sink millions of dollars into a hole in the ground without knowing for certain what's going to come out of it, if anything but salt water."
With all parties working together, the Haynesville Shale likely could "blow the socks off of northwest Louisiana," Lemons said.
Source: TheAdvertiser
TEXAS: CenterPoint Energy First-Quarter Net Income Jumps 48%
Published | 05-May-2007Net income climbed to $130 million, or 38 cents a share, from $88 million, or 28 cents, a year earlier, Houston-based CenterPoint said today in a statement. Revenue rose 0.9 percent to $3.11 billion.
Texas has added more population than any other state for two straight years, according to the U.S. Census Bureau. CenterPoint said its gas utilities had 48,000 more customers than a year earlier at the end of March. The company also delivers power to about 2 million Houston-area homes and businesses, including almost 39,000 added in the past year.
``It was a very strong quarter, basically driven by the natural-gas business,'' said Daniele Seitz, an analyst at Dahlman Rose & Co. in New York who has a ``hold'' rating on CenterPoint shares and doesn't own any.
Earnings from gas distribution rose 25 percent to $129 million, partly because cooler weather than a year earlier led to more furnace use by customers. Profit from competitive gas sales and service more than doubled to $56 million.
Chief Executive Officer David McClanahan is expanding CenterPoint's interstate pipeline business, a key source of growth. That segment, which generated only 2.9 percent of first- quarter revenue, accounted for more than 12 percent of earnings.
Expectations Exceeded
Overall, earnings per share were 5 cents higher than the average of eight analyst estimates compiled by Bloomberg. The analyst estimates were based on profit excluding one-time charges and gains. CenterPoint didn't cite a profit figure on that basis.
Shares of CenterPoint fell 4 cents to $19.57 in New York Stock Exchange composite trading. The stock, which has three buy and 10 hold ratings from analysts, has climbed 18 percent this year.
CenterPoint's gas utilities have more than 3 million customers in Texas, Arkansas, Louisiana, Minnesota, Mississippi and Oklahoma. In the Houston area, CenterPoint distributes power generated by others and sold to customers by retailers such as Houston-based Reliant Energy Inc. and Dallas-based TXU Corp.
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USA: Making haste with waste
Published | 05-Mar-2007While corn-based ethanol is cheaper to make and has a big head start, a breed of ethanol made from nonfood crops and agricultural waste is gaining momentum as a promising long-term alternative to gasoline.
Indeed, a series of recent events signal that cellulosic ethanol has moved from being just a big idea to something that investors, government officials and energy companies are starting to take seriously.
On Wednesday, the Energy Department announced $385 million in grants to help build six facilities to produce the fuel, one of which will use Houston-based Waste Management as a supplier. Weeks earlier, a Massachusetts firm broke ground on the nation's first cellulosic ethanol "demonstration" plant in Jennings, La. And several oil companies and universities have recently announced initiatives to develop better ways of making the fuel.
The efforts highlight growing interest on many fronts in alternative fuels, which have been touted as a way to help curb U.S. dependence on foreign oil, reinvigorate American farming and reduce carbon emissions.
As part of President Bush's goal to reduce U.S. gasoline consumption 20 percent by 2017, the nation will need to use 35 billion gallons a year of ethanol and other alternative fuels — or about five times the current output.
But cellulosic ethanol still faces challenges that could keep it from being rolled out on a wide scale for many more years. Chief among them: production costs that are roughly double those of corn-based ethanol.
"You're talking about a commodity that needs to sell for $1 a gallon," said George Douglas, spokesman for the National Renewable Energy Laboratory in Golden, Colo.
Cellulosic ethanol costs roughly $2.25 a gallon to produce, compared with $1.07 for corn-based ethanol, he said.
Pulling the cost down
Until the equation is more clear, Jeffrey Harris, managing director of Warburg Pincus, a New York private equity investment firm with $16 billion of assets under management, says his firm will remain interested but cautious.
"We're aggressively looking at opportunities in this area, and are encouraged by some of the progress made. But the industry has not yet proved all the components necessary for commercial success," he said.
The Energy Department grants announced last week will fund about one-third of the $1.2 billion the agency estimates will be needed to build the six cellulosic ethanol plants. The rest will come from private investors and other project stakeholders.
Under the 2005 Energy Bill, the agency had been authorized to invest $160 million in grants but doubled the amount in order to expedite a Bush administration initiative introduced in January's State of the Union address, which includes the gasoline usage-cutting goal and a provision to raise auto fuel economy standards.
Tree limbs, grass clippings
"Landfills are the next oil reserves," said Arnold Klann, head of the Irvine, Calif.-based firm, which intends to break ground next year.
Waste Management is taking a wait-and-see approach.
"Right now, it's a pilot to see if this technology can be commercialized," company spokeswoman Lynn Brown said. "We won't know if it's feasible until the project is complete."
Using a different refining process than BlueFire, most cellulosic ethanol producers will use agricultural waste such as corn cobs, switchgrass and rice straw, which they say is in abundant supply and could help drive down costs of producing the fuel over time.
Its backers say using nonfood crops and agricultural waste is a better long-term solution for ethanol production than using corn. Rising corn-based ethanol production has led to sky-high corn prices, competes with food supplies and takes more energy to make, they say.
Yet the new Energy Department grants will only provide a small step in getting the cellulosic ethanol industry off the ground, said John Howe, spokesman for Cambridge, Mass.-based Celunol, the firm building the demonstration plant in Louisiana.
"I would say the view in the industry is, while they are helpful, they are not sufficient to get the industry where it needs to be," said Howe, whose firm did not apply for one of the grants.
Pushing a loan program
The U.S., which has 114 ethanol plans in operation and 78 under construction, produced about 4.9 billion gallons of ethanol last year, according to the Renewable Fuels Association, an industry trade group in Washington, D.C.
By comparison, the country consumes roughly 140 billion gallons of gasoline per year.
When fully operational, the six new Energy Department-backed refineries are expected to produce about 130 million gallons of cellulosic ethanol per year — a small dent in the nation's gas needs.
But Matt Hartwig, a Renewable Fuels Association spokesman, said that will surely grow as the industry finds its footing.
"These aren't the big 100 million-gallon-a year plants you see with corn-based ethanol. But corn-based ethanol didn't start with 100 million-gallon plants, either."
Senators seek answers on petroleum reserve expansion
Leaders of the Senate Energy and Natural Resources Committee say President Bush must show why Congress should expand the nation's 727 million-barrel emergency oil reserve.
The energy committee must "look closely at the need for a larger reserve, its cost, its impact on world markets and its effect on oil and gasoline prices," Sens. Jeff Bingaman and Pete Domenici said in a letter last week to the Senate Budget Committee. Bingaman, D-N.M., chairs the committee. Domenici, also of New Mexico, is its ranking Republican.
The letter was sent to budget committee Chairman Kent Conrad, D-N.D. The reserve, in Texas and Louisiana, held 689 million barrels as of Feb. 23.
The letter also says Congress is unlikely to approve oil and gas drilling in Alaska's Arctic National Wildlife Refuge. Chron
Bush seeking ethanol alliance with BrazilIn only a few years, Brazil has turned itself into the planet's undisputed renewable energy leader, and the highlight of Bush's visit is expected to be a new ethanol "alliance" he will forge with Brazilian President Luiz Inacio Lula da Silva.
The deal is still being negotiated, but the two leaders are expected to sign an accord Friday to develop standards to help turn ethanol into an internationally traded commodity, and to promote sugar cane-based ethanol production in Central America and the Caribbean to meet rising international demand.
Across Latin America's largest nation, Brazilian media are billing the Bush-Silva meeting as a bid to create a two-nation "OPEC of Ethanol," despite efforts by Brazilian and American officials to downplay the label amid concerns that whatever emerges would be viewed as a price-fixing cartel.
Meanwhile, political and energy analysts warn that any agreements reached between Brazil and the United States are unlikely to have short-term effects. And the deal itself could end up largely symbolic because of reluctance by Washington to address a key point of friction: A 53 cent-per-gallon U.S. tariff on Brazilian ethanol imports.
"For the Brazilians, the tariff has utmost priority," said Cristoph Berg, an ethanol analyst with Germany's F.O. Licht, a commodities research firm. "They will agree with developing biofuel economies around the world, but the first thing they will say is 'We want to do away with that tariff.'"
No one is expecting Bush to give ground on the tariff. The politically sensitive issue essentially subsidizes American corn growers who are rapidly ramping up ethanol production amid Washington's encouragement of renewable biofuels to ease U.S. dependence on imported petroleum.
But the visit will help Bush and Silva join forces to promote the politically popular issue of renewable energy simply by gathering in a place where ethanol is king.
At every gas station in this city of 18 million, drivers can fill up with gasoline or ethanol. Ethanol came courtesy of a 1970s decision by Brazil's former military dictators to subsidize production and require distribution at the pumps.
A 1980s Brazilian fad with cars that ran only on ethanol petered out when oil prices fell in the early 1990s. But the fuel came back into vogue in 2003 when automakers started rolling out cars "flex-fuel" cars that run on gasoline, ethanol or any combination of the two.
With international oil prices reaching record highs, Brazilian drivers turned to the cars; most choose ethanol, because it costs about half the price of gas.
The ethanol industry is now making profits like never before amid heavy foreign investment. Just last week, Brazil's state-run oil firm, Japan's Mitsui & Co. and a Brazilian construction firm signed a memorandum of interest to study the construction of a pipeline in Brazil that would be used to help export ethanol to Japan.
Brazil is the world's top exporter, though U.S. ethanol production still surpasses Brazil. But Brazil has an edge over the United States for future production because ethanol can be produced more cheaply with sugar cane than the corn used by U.S. farmers to make ethanol.
And increased use of corn for ethanol is prompting international corn price increases, prompting Silva to tell reporters last week he would tell Bush, "Why make ethanol out of corn? Why don't we feed the corn to the chickens."
Bush has set a goal of 35 billion gallons a year of ethanol and other alternative fuels, such as soybean-based biodiesel, by 2017 — a fivefold increase over current requirements.
But production of ethanol from U.S. corn is expected to fall far short of meeting such an increase, and experts doubt even land-rich Brazil would be able to fill the gap along with help from Central America and the Caribbean. So Bush envisions a major speedup of research into production of "cellulosic" ethanol made from wood chips, switchgrass and other feedstocks.
Ethanol proponents hope Bush and Silva will nonetheless come up with a framework to sharply boost ethanol production in the nations between Brazil and the United States, encouraging more foreign investment.
And coming up with technical standards to define quality levels for ethanol is key to turn it into a commodity that could be traded like oil.
"I think its Brazilian know how and American know how, there's a lot of cross fertilization that can take place," said Brian Dean, executive director of the Interamerican Ethanol Commission.
The commission counts among its directors Florida Gov. Jeb Bush, the president's brother, as well as former Brazilian agriculture minister Roberto Rodrigues and Luiz Moreno, president of the Inter-American Development Bank.
Increasing ethanol production in the region is also expected to be a major topic in Guatemala later this month when the bank holds its annual meeting, Latin America's top yearly economic gathering.
"We see a marketplace in ethanol that can create an enormous amount of economic growth and prosperity in the United States and the rest of the world," Dean said.
