Polar opposites

Louisiana's trademark industry has become one of immense contrast in recent years, with northern rigs overtaking operations in the Gulf of Mexico and success favoring natural gas discoveries above oil exploration.

A three-year comparison, based on reports prepared by the Louisiana Department

Look at it this way: In 1997, there were 17 rigs drilling in north Louisiana; now there are 60. Meanwhile, in the swampy south, 81 rigs have become 53 over the past decade.

The flow of business is easy to track. Land rigs in the south are being relocated to the north, where prospects are bright, and Gulf outfits have been closing up shop in the face of increased costs. "There has obviously been a significant shift of drilling activity from the Gulf to onshore Louisiana, but not everything is gone," says Mike French, the DNR's technology assessment director. "And within Louisiana, there's a move to north Louisiana. We also see a 67% increase, mostly from natural gas, in the northern part of the state, a region that is the oldest and most drilled up already. It's really another state boom up there."

French describes the scenario involving the offshore exodus, which is under federal jurisdiction, as unique to Louisiana, because most other states are "experiencing significant drilling everywhere." High oil and gas prices are driving the explosion of activity in north Louisiana, he says, while a slow recovery from the 2005 hurricane season plagues coastal parishes.

Don Briggs, president of the Louisiana Oil and Gas Association, a trade and advocacy group, says the state's newfound obsession with natural gas parallels national statistics. According to Baker Hughes, of the 1,781 rigs currently operating in the U.S., 1,483 are seeking gas over oil. "There's a whole new gas play in north Louisiana," Briggs says, "and while the region has a long history, it's not all drilled up. The drilling is going deeper than ever before, 8,000 to 12,000 feet. Because of high prices, it has become economical to do business up there. If prices stay up, this trend could continue."

As for the Gulf's drilling decline, Briggs argues it has very little to do with hurricanes. He said the number of Gulf rigs has been steadily decreasing because there are "greener pastures out there" and the Gulf has become "the No. 1 most expensive place to drill in the world." But that won't last forever. "You're going to see all of that change here before long," Briggs says. "The independents and huge majors are finding deepwater drilling in other parts of the world to be unfriendly, as far as the geopolitics. The Gulf of Mexico is politically stable" compared to the unpredictable nature of foreign locales such as Venezuela, where oil fields were recently nationalized.

Additionally, Briggs predicts the eastern Gulf will soon be opening up and the drilling response could be unprecedented.

These are strange times for Louisiana's energy sector. At a time when state officials are asking for billions of dollars to implement coastal restoration, hurricane protection and flood control projects, the state fisc is looking better than ever. A legislative money committee recently found another $1 billion surplus. Furthermore, the state Mineral Board recently reported that Louisiana's income from oil and gas royalties for this year was $522.5 million, an all-time high, and total income from bonus, leaseholder, and interest payments was $600.1 million, the highest since 1982.

In what will certainly come to define her only term in office, Gov. Kathleen Blanco also sued the Interior Department last year to force the federal government to increase the percentage of money Louisiana receives from drilling in certain areas of the Gulf of Mexico. The anticipated $500 million annual stream will be a boost to implementing the state's master plan, but the money won't start arriving for another decade.

But if you listen closely to Louisiana officials, the so-called "Energy Coast" has one vital need, strangely enough: Money. The state Legislature recently approved a master plan outlining priorities for coastal restoration, hurricane protection and flood control - often tying them to the success of the oil and gas industry, which needs the cover. The price tag for all of this, which is constantly in flux because of developing projects and construction costs, could eventually reach as high as $60 billion.

The message is dire, as are the protections needed: You won't truly appreciate us until we're no longer here. You won't know what you had until it's gone. These are the lessons Louisiana officials were hopeful the country would have learned in the aftermath of Katrina and Rita, but memories can fade fast.

America's Wetland, a public-private nonprofit that has helped brand the Energy Coast more than any other group in recent years, touts many stats as a reminder. Among the 50 states, Louisiana's energy production ranks first for crude oil and second for natural gas - and that's including the vast Outer Continental Shelf. Additionally, Louisiana's coastal wetlands provide storm protection for ports that carry 487 million tons of waterborne commerce annually, accounting for 19% of all such trade in the nation.

The recent revenue streams discovered only bolster the seemingly endless strength of the sector. "These figures, coupled with severance tax income (not yet completed) and increases in drilling activity, all suggest that times of growth and prosperity are upon us," Department of Natural Resources Secretary Angelle says.

But not everyone is jumping for joy. Many, including Republican state Treasurer John Kennedy, believe Louisiana is enjoying a false economy and that the bubble will eventually burst. It's just a matter of time, doubters say, because oil and gas prices won't stay in the stratosphere forever.

David Dismukes, a professor at the LSU Center for Energy Studies, says record royalty income has been driven not just by high prices, but also by increased production. That lease sales are generating record income indicates that the industry views Louisiana in a more attractive light today for future energy investments. "These numbers certainly support the conclusion that Louisiana's proactive resource policies, which have streamlined permitting, eliminated waste, and reduced legal and regulatory uncertainty, are paying big dividends," he says.