OIL & GAS: All played out?

If the current scarcity of natural gas develops into a fullblown shortage, some states stand to gain from an exploration boom.

Louisiana may not be one of them.

National demand for natural gas sent prices through the roof this winter, hitting record highs following bitter cold snaps.

But

"The regulatory and permitting process generally makes it much more difficult to get a well drilled in Louisiana than other states," said Ackal, whose company operates in 22 of them.

Ackal, 50, has just been named chairman of the Louisiana Independent Oil and Gas Association, the trade group that represents independent producers. Business Report recently asked Ackal about the challenges Louisiana faces in cashing in on new natural gas production and his group's hopes for the nation's energy policy.

Business Report: Why can't supply keep up with demand for natural gas?

Ackal: You had a colder than normal winter, that's probably the main reason. Plus other industries' demand for natural gas is up, including ones that used to use other sources of fuel. Also the economy has slowed.

Gas prices continue to hover above $5 per million BTUs (average prices are $2-$3). Where do you see prices going the rest of the year?

I'd be surprised if this year it drops below $3.50.

How much does it cost to explore and drill for natural gas?

In deep water, it can cost tens of millions to drill. A well could be $10 million to drill to 15,000 feet. Companies are going for the big reserves to justify the drilling, and it's generally deeper than we've been accustomed to.

At your company in particular, how much exploration are you doing compared with past years?

We are slightly down in this year's capital expenditures, but we're still only one of two or three major independents whose capital budget is more than $1 billion. We drilled more wells in the U.S. than any other company. We produce mostly natural gas, about 75 to 80 percent, and the balance is oil.

How much new exploration for natural gas is actually going on?

In Louisiana there probably are fewer wells drilled now than in the 1980s, the last big consistent heyday. It's just harder to find viable prospects that industry thinks are commercially justifiable to recommend spending capital expenditures to drill new wells.

Why?

It's a combination of many factors. There's so much uncertainty within the industry, the country and worldwide. Uncertainty drives risk, and that affects who we spend with and in what state or country we spend.

There's been a move on Wall Street in the last few years to have oil companies reduce their risk as much as possible and clean up their balance sheets-avoid as much uncertainty as they can.

It seems to me that all makes Louisiana have to recognize that we have to be more competitive with other states to provide incentives for those limited capital dollars. If industry does not feel it's competitive, the dollars get spent somewhere else.

What do you hope happens nationally?

We need to open up new places to exploration. There's a lot of stranded natural gas where industry is not allowed to drill and produce. We can open other areas for exploration that would hopefully translate ultimately into more natural gas being discovered and being sent to market.

What about in Louisiana?

A number of things. We need incentives. I'd love to see tax incentives, royalty incentives. On the shelf of the Gulf, if you drill below 15,000 feet on new leases, you don't have to pay royalties to the federal government until you reach certain production levels. We'd love to see Louisiana implement the same thing to encourage deeper drilling.

And it would be nice to see the state create incentives on state leases so you don't have to pay royalties until you reach certain production levels.

We need quicker turnaround times for necessary permits-and that runs the gamut for drilling and production wells.

Generally, Louisiana has to continue to provide incentives that allow us to make decisions to drill here. The state is not quite there yet.

Is Louisiana still competitive?

More companies in the past 10 years have decided not to spend in Louisiana than have decided not to spend in Texas. More have taken their money to other states. Louisiana is a very mature oil and gas producing province. It's tough geologically to put a deal together.

The companies that remain in Louisiana are bold enough to play Louisiana because they know there are areas you can be successful if you have the capital necessary. Risk equals reward.

We just hope the state of Louisiana will continue to recognize it needs to be more user-friendly to industry.