During the final days of its regular session, the Legislature quietly voted to stick a finger in the chest of the state Mineral Board, at least on paper, and urge its administrators to consider special perks for deep drilling. The board is charged with bidding out to private companies the energy leases located on state-owned lands and water bottoms. For the most part, oil and natural gas producers typically avoid the leases that require deep drilling due to the costs the inherent perils involved. That’s why lawmakers want the board to think about accepting only “minimal” royalty payments from deep-drilling leases that dip down to a true vertical depth of 15,000 feet below the surface. If not for the risks, it would be prime territory for producers and the state estimates that some 30 trillion cubic feet of natural gas remains unexplored below the threshold.
If nothing else, a credit or other tax break could generate more interest in the state’s leases. Like practically every other month this year, the June mineral lease sale recently conducted by the board dipped below previous performances. In fact, the June sale hit a three-year low by bringing in only $1.4 million for the state. In all, the Louisiana Mineral Board awarded 11 leases mostly located in northern parishes. By comparison, last year’s June sale produced more than $35.8 million in payments for the state and 38 leases for oilmen and independent producers.
As for how successful new incentives on the state level might be, look no further than the federal Deepwater Royalty Relief Act of 1995, which was established to increase production and to encourage development on federal leases. From 2004 to the present, 326 wells have been drilled between 15,000 and 18,000 feet in the Gulf of Mexico’s Outer Continental Shelf and the federal royalty relief program has been credited at least partially for the boost. On the state level, though, only 23 wells have been drilled at similar depths during the same five-year timeframe.
The resolution adopted by lawmakers was the brainchild of Greater New Orleans Inc., a Crescent City chamber organization. GNO was backing Senate Bill 206 by Rep. Nickie Monica, R-LaPlace, which would have created a special break on the royalty payments that companies send to the state based on the property taxes they pay to parish governments for their deep drilling projects. But the proposal was shelved during the final hours of the session Thursday afternoon. Michael Hecht, president of GNO, is expected to address the state Mineral Board directly in coming weeks and groups like the Louisiana Alliance for Affordable Energy are already labeling it a “handout,” according to the Times-Picayune.
