Author of disputed 'legacy lawsuits' study speaking in BR Tuesday

by Patrick Flanagan

David Dismukes, author of the often-cited study on the impact of legacy lawsuits on Louisiana's oil and gas industry, will appear Tuesday as a panelist for LSU's Economic Outlook Forum, but will Dismukes address what's been dubbed a "fatally flawed" study by some of his academic peers?

David Dismukes, author of the often-cited study on the impact of legacy lawsuits on Louisiana's oil and gas industry, will appear Tuesday as a panelist for LSU's Economic Outlook Forum, but will Dismukes address what's been dubbed a "fatally flawed" study by some of his academic peers?

David Dismukes

Tuesday's forum is sponsored by the Grow Louisiana Coalition - a group dedicated to promoting the positives of the oil and gas industry on Louisiana. Dismukes, associate director and a professor at LSU's Center for Energy Studies, will be joined at the forum by LSU economist Jim Richardson, LOGA Vice President Gifford Briggs, Global Energy & U.S. Economics General Manager Mark Finley and Louisiana Mid-Continent Oil and Gas Association President Chris John.

The February 2012 Dismukes study, an update of his 2005 study, has been a fail safe for oil and gas industry advocates like the father/son team of Don and Gifford Briggs of LOGA, who time and time again use it to back their claim that the state's hostile legal climate is causing the industry to leave for greener pastures.

According to Dismukes, Louisiana has lost 30,000 potential jobs and about $6.8 billion in oil and gas revenue thanks to our penchant for legacy lawsuits.

Yet a number of problems with Dismukes' study have been raised by his academic peers, including an April 2012 response published by ECONorthwest economists and University of Oregon professors/PH.D.s Ed Whitelaw and Bryce Ward. Their response is a scathing review of Dismukes' work, which they call a "fatally flawed" study that puts bias before scholarly methods.

In the summary of their response, Whitelaw and Ward write:

In our opinion, the Dismukes document fails to meet any of these professional standards. And this failure matters to the degree that the Dismukes document is fatally flawed, both theoretically and empirically. Nowhere does Dr. Dismukes present a coherent economic model linking legacy lawsuits and decisions to drill in Louisiana. Even if we were to ignore this flaw, he has failed to produce the actual data from which he has estimated his percentages and indices, so we cannot check even his arithmetic.

All Dr. Dismukes' empirical work rests on his key assumption that the other states he examined illustrate what would have occurred in south Louisiana but for the legacy lawsuits. But there are starkly obvious reasons why south Louisiana's oil industry would have followed a different path than that of north Louisiana and that of the other states' oil industries during the period Dr. Dismukes chose to examine.

First, Dr. Dismukes simply ignores Hurricanes Katrina and Rita. That is, he assumes, incredibly, that Katrina and Rita had no effect on drilling, even in south Louisiana where the state's oil industry suffered a disproportionate amount of the hurricanes' damage.

Second, because these hurricanes occur simultaneously with what Dr. Dismukes has claimed to be a spike in legacy lawsuit filings (2005 and 2006), his method attributes whatever effects the two hurricanes did have to legacy lawsuits. This creates enormous bias in his results, what quantitative analysts in many disciplines call omitted variable bias.

Third, Dr. Dismukes ignores the differences across states in types of drilling. He focuses his comparison especially on south Louisiana, where conventional drilling dominates, with entire other states, where unconventional drilling is surging. This is comparing apples and oranges with a vengeance, and it compounds the omitted variable bias in his analysis and his opinions.

Fourth, Dr. Dismukes ends his observations in his model in 2007, too soon after Katrina-Rita for him to detect the effects reliably. That is, he ends his analysis before the effects of his errors and biases would have become more apparent. For example, Dr. Dismukes chose to ignore the Fraser Institute's 2011 Global Petroleum Survey of petroleum industry executives and managers, 63 percent of whom found Louisiana's legal system " not a deterrent to investment" and 22 percent found it "encourages investment." And yet he fails to explain this unusual step.

Furthermore, ignoring Katrina and Rita contaminates most of the other claims Dr. Dismukes

According to Dr. Robert Gramling, a retired UL Lafayette professor of environmental sociology and author of a number of books on the oil and gas industry, the only flaw with the ECONorthwest review is that it doesn't go far enough.

"Conventional drilling started very early in South Louisiana - in 1907, I think - and has continued ever since," says Gramling. "There is a finite amount of oil in any location and much of what is in South Louisiana has been located and produced. So there is less drilling because there is less oil. Dismukes is mistaking correlation with causation. Drilling is down in South Louisiana simply because there's less oil, not because there's more legacy lawsuits."

Another point of contention, says Gramling, is that Dismukes' study splits Louisiana into two regions - north and south - which he uses to compare to other states in their entirety. The activity in those other states is based on unconventional drilling, or fracking, which also has resulted in a boom in North Louisiana. That, however, is not the case for South Louisiana, where the activity has solely been focused on conventional forms of extraction.

"You cannot legitimately compare regions of Louisiana with other entire states, because many of the rapidly growing states, in terms of drilling, and the increase in North Louisiana is all because of fracking," explains Gramling.

It seems Dismukes will have some explaining to do Tuesday.