Business Cover

Shale Shock

The world is watching northwest Louisiana and the Haynesville Shale natural-gas play. It’s a rolling, seven-parish field so flush with the resource that it boggles the minds of oil veterans, politicians and newly made millionaires.

photo by Robin May

In early October, amid the rolling hills of the 6,000-population Mansfield, La., an hour south of Shreveport — on the southern side of the so-called Haynesville Shale swath of about seven Louisiana parishes and into east Texas and southwest Arkansas — several local residents await “Miss Mary.”

U.S. Sen. Mary Landrieu is about to arrive at the multicultural center here in the DeSoto Parish seat, delivering a speech called “Shale Shock,” a reference to what is potentially the largest natural-gas field in the nation — by far — and perhaps the fourth largest in the world. The gist of her speech: Now that money is flowing and will flow for decades in gusher-like proportions here, what do they do with the new cash?

Though this new gas boom is pretty well northwest of Lafayette, which specializes in the service-sector portion of the industry, Acadiana leaders expect thousands of trickle-down jobs in the next decade or two, according to Anne Falgout, the Lafayette Economic Development Authority’s director of information services.

“We’ve always been an oil-and-gas service area, so that’s what we’ll see [with Haynesville],” Falgout says. “We’re not on the production side here, but we’ll see some effects. We can adapt to the specific fabricating machinery, for example, for natural-gas drilling.” As for Louisiana itself, Haynesville Shale has infused $175 million in a huge — and unplanned for — bonus for its state-owned lands. Millions in severance taxes are also on the horizon for Louisiana — as long as the wells produce.

To put Haynesville in perspective: About 10,000 feet below the ground where this Mansfield group was gathering, the Haynesville Formation could have up to 300 trillion cubic feet of natural gas ensconced within its 150-million-years-old, difficult-to-get-to, Jurassic Period-borne shale-rock sediment. Think 300 trillion basketballs filled with a vital, clean and cheap alternative-energy source. The nearest play to that is the 30 trillion cubic feet of gas gleaned in the last five years in the adjacent Barnett Shale field of east Texas.

The Haynesville figures trump all others, says Lafayette-based landman James “Pit” Hesterly. “One trillion cubic feet is considered phenomenol,” he says.

Don Briggs, a 45-year oilfield veteran who’s also from Lafayette and is president of Louisiana Oil and Gas Association, recently opened an office in Shreveport and hired Jodee Niswanger, one of Gov. Bobby Jindal’s former natural resources policy advisers, to head it.

“It’s mind-boggling,” Briggs says. “Remember, the Barnett Shale play eventually brought in 6,600 producing wells. And we are only in the infant stage of this whole [Haynesville] thing. They’ll literally drill thousands of wells.”

“New rigs are coming out here every day,” Niswanger says.

Predictably, this past year the area has also been drilled with pejorative Jed Clampett jokes (one national media outlet labeled the nouveau riche “hillbillies”) and trailer-residents-turned-millionaires tales. MSNBC featured the Haynesville Shale play (named for the gamble one must take on in such potentially lucrative ventures), and also The L.A. Times, The New York Times and even some foreign-based bloggers talk about the area, the Cadillacs bought, the five-bedroom homes purchased or being built (sounds a lot like Lafayette right before the bust).

Some leased lands here jumped from $100 to $30,000 per acre. Think of the struggling lower- to middle-class landowner who owns hundreds of acres, and then imagine the royalties that will come for two, even three, decades hence — now you get the picture.

Some cashed in a year or two ago — before word got out and prices skyrocketed. Now they’re angry and threatening to sue, though newly elected 42nd Judicial District Attorney Richard Johnson tells Acadiana Business there is little, if any, recourse once you sign documents and accept the cash.

“I got burned,” says Huey P. Evans Sr., a 71-year-old African-American from Mansfield, which is 65-percent black. “In March we signed, before we knowed anything about this.” He says they got $125 per acre from Long Petroleum of Shreveport for the family’s 10 acres east of Mansfield. “Now they’re getting $30,000 an acre out here,” Evans says. “Our neighbor has 126 acres, and they didn’t give him nothing but $100 an acre. He wants to file suit.”

“I just want what’s mine. Wherever the hub [of activity] is, I want to be — not on the rim of the hub, but in the hub,” says Sadie Dunn, 61, a Mansfield landowner who’s patiently waiting to lease her share from her family’s land in De Soto Parish, which, according to the U.S. Census, sports a drastically high 20-plus-percent poverty rate. “I heard of people leasing for a little, and I heard people leasing for a lot. I want to be near the top of that chain.”

Stonewall Mayor Curtis McCune says his nearby growing town has six wells drilling. “People who leased early, they’re very unhappy,” he says. “I understand there are some attorneys who say they have recourse, but that’s not what I hear.”

Briggs is urging landowners to look at the long-term viability — the royalty payments — for extended, main profits. Those who leased for $100 could have millions in royalty revenue one day, he says, while those who leased for bigger bucks could find their lands rife with dry holes.

Oilmen have known about the Haynesville formation natural-gas deposits for at least 60 years. Haynesville itself is actually located in Claiborne Parish only five miles from the Arkansas border, though the main “sweet spots” are also probably within six other parishes: Caddo, Bienville, Bossier, De Soto, Red River and Webster. The Louisiana Department of Natural Resources also cites Texas counties such as Shelby, Harrison, Panola and Marion, and a tiny portion of Arkansas.

But since the 1940s and 1950s, new technology — more specifically, advancements in horizontal-drilling techniques that allow workers to capture the hydrocarbon riches from the hard rock a mile or so from the initial vertical-drilling spot — has enabled oil-and-gas giants like Oklahoma-based Chesapeake Energy (which will eventually scoop up half-a-million acres) and Cubic Energy (which had been quietly working here for four years) to seek out the clean-burning energy source. Natural gas emits about half the greenhouse-gases of other hydrocarbon products, such as coal and oil.

Yet both firms were playing their leasing low-key until this past March, when Houston-based Goodrich Petroleum and Petrohawk Energy publicly outed the finds. That’s when the news hit the fan, prompting Chesapeake to also issue a statement, noting its position that the Haynesville Shale play could potentially have a larger impact on the company than any other play in which it has participated.

Still, these deeper and more-expensive horizontal, or lateral, rigs cost up to $8 million to set up, and in the end locating gas is generally a WAG, an old oilman’s acronym for “wild-ass guess.” But the evidence is pretty solid that natural gas awaits those who seek it, say Briggs and others.

“Haynesville is so huge,” gushes Landrieu regional representative Jeffrey Everson, who is also awaiting his boss outside the center on this October morning. “A lot of people became millionaires overnight. They need information on how to handle that. People who used to be ‘thousand-aires’ went out and spent big money, not realizing they had to pay taxes on their new money. They just need some guidance at this point.”

That advice also applies to property-owning governments themselves, of course. Jerry Moncrief, District 1-A De Soto Parish police juror, boots down a cigarette nearby and says, “We did get $27.8 million off of about 1,245 acres of land we leased. That’s not even royalty money. And if they do not drill within a year, we get another $14 million. Like all small parishes it is a bonanza for us.” Compare that, he says, to De Soto’s total annual budget of about $22 million. The jurors decided to invest the money both locally and with Whitney Bank in New Orleans.

Naturally, greed and suspect opportunists can follow such a “bonanza,” as Moncrief calls it. “Where you get large amounts of money, it brings an element in from the outside looking to take advantage of people who don’t have the experience,” he says. “We’ve all been in a learning process.” A landowner himself, Moncrief leased his property a year ago at $200 an acre. “Of course, now there are five-figure numbers out there,” he says, then chuckles. “But the salve on that wound is that my royalties, potentially, will far outweigh any lease money.”

Kassi Fitzgerald, a small-property owner who has formed an organization to help those she feels are being ripped off, says shady companies paid some Hispanic people, for one example, $250 per acre while they gave $1,500 or more to others just down the block.

Finally, Sen. Landrieu arrives by SUV in Mansfield, speaking intently to Evans and several others. She skillfully moves toward the hall’s doors, deflecting issues to her assistants. She seems to quell some in the small crowd, at least for the moment.

Inside the multicultural center hall, addressing about 60 people, Landrieu notes the poverty rate in De Soto then cogently boils it down to what everyone’s thinking: “Well, it looks like one of your problems has been solved.” Money’s already flowing and that’s a good thing, she says, for this primarily low-income, 28,000-population parish — mostly a good thing, anyway.

“It’s not going to make every single solitary person in this parish wealthy, but it should enrich everyone if the money is spent well and wisely,” she says. Landrieu says planning means everything when a windfall such as Haynesville unexpectedly blows in. Spend it on roads, she says, or education, or file it away for future expenditures. “Go to other areas to find out what they did and what mistakes they made,” she says. Local officials assure her they’ve already done that.

Landrieu then hears of the drilling’s effect on the Chicot Aquifer, the area’s water source. It’s the same issue apropos to shale fields in New York and Pennsylvania. While natural-gas output is welcome and should fuel autos and trucks within the next half-decade, officials here say culling it from the ground means companies have to fracture — or “frack” — the rock-shale, a process aided by injecting millions of gallons of water mixed with dangerous chemicals. These types of issues are new to everyone here.

“We’re behind the curve a little bit,” De Soto Chamber of Commerce Executive Director Jim May tells the senator, “because this hit us so fast.”

photo by Robin May

Meanwhile, from his home office in Lafayette the day before Landrieu’s speech, Briggs says resource plays such as Haynesville will have a tremendous effect on Lafayette’s service industries.

“Companies here will be opening offices up there,” he says. “I opened one in September.” Expect up to 184 extra workers total per rig. Some hands will come from here, Baton Rouge, Lake Charles and New Orleans. One predictor is the Barnett Shale play, which added nearly 85,000 jobs to that area during its half-decade run.

One potential snag, however, is falling natural-gas prices. A longtime Lafayette landman, Hesterly got into the play early on, his job to research court records to find landowners and proper boundary lines. In 2006 one of his clients, Rising Star Energy, sold to Chesapeake Energy, which first drilled in Caddo Parish at the Texas border. “You have to take the risk,” he says — and Chesapeake did just that. “You have to have the laterals now. The further you lateral, the more perforations [fracks] you have and the better production you have. The technology is improving almost daily.”

But his question these days: “Will it be economically feasible to drill these wells at $6.50 [per thousand cubic feet], which is what we have today?” Back in July, natural gas was at nearly $14/mcf.

Hesterly could have a point. On Oct. 8, this cautionary tone was reflected in a Shreveport-based lease sale at a Louisiana Mineral Board hearing that brought in less than half gleaned even a month before. Mansfield offered 113 additional acres that no one bought. Shreveport’s 2,500 acres, at $20,000 an acre, got no bids; neither did Bossier City’s 3,159 acres. Others sold, but at $12,000 per acre or less. Additionally, Chesapeake and Petrohawk have both announced recent slowdowns, with Chesapeake cutting $3.2 billion, about 17 percent, from its drilling budget, and Petrohawk slicing about $1 billion.

Hesterly says landowners who leased from March to August “did the best, because they signed up based on the current gas prices.” Thousands of landowners are involved, he says, but their payments could stop at the lease payments. “The irony of the oil-and-gas world,” Hesterly says, “is you have to drill a bunch of dry holes to find a good hole. That’s the risk — for everyone.”

Briggs notes the slowdown, but says it’s more a sign of the financial times.

“Economics have changed things recently,” he says. Yet he can’t help but shake his head at the numbers he’s witnessing with Haynesville. “I mean, $30,000 an acre? I’ve never seen that,” the 67-year-old says. Other companies are swarming northwest Louisiana, including Encanam, Camterra and Shell Western, as well as Comstock, Sun Coast, Audubon Gas, El Paso, Winchester and Trinidad Drilling. Dozens more are expected as the play heats up.

“Prices will slow it down. That’s what’s happening now,” Briggs notes, stressing that Haynesville should be a 30-year, “long-term” deal that will employ hundreds or thousands of locals if the labor force can be found. And it will, if the state has any say. A $500,000 “rapid response” grant has been released to technical colleges specific to the Haynesville issue, says LOGA’s Niswanger. She says in the coming months LOGA expects to have an assessment of the play’s economic impact across the state, including what it means to Lafayette’s economy.

For now the big winner among local governments is De Soto Parish; with its $27.8 million, it has made out best of the seven-parish area as far as leasing. Claiborne, Bienville, Webster and Red River and Bossier Parish — the largest in the play with a $40 million total budget — have yet to lease any of their parish-owned lands.

“It’s not based on location. It’s really based on geological formation. We’ve had lease activity here, but it’s not the $30,000 per acre they got in De Soto,” says Dwayne Woodard, secretary-treasurer for the Claiborne Parish Police Jury, which has a $7 million total budget and 500 acres it would like to lease.

Situated above De Soto Parish, Caddo “did pretty well,” says Caddo Parish Commission Clerk Jerry Spears. “We got about $18 million.” More acreage is available, and he believes companies like Chesapeake are on to “a sure thing” when it comes to this play. “I live right in the middle of what they call the ‘sweet spot,’” Spears says. “Chesapeake’s the big player, and I can tell you that Haynesville Shale is a huge monolithic formation that not only contains gas, but generates gas. The point is, Cheseapeake Energy is so confident that this is a given, that the gas is there, that they’re running the pipelines to these things before they’re drilling. I’m serious.”

Yes, he is serious. The day after Landrieu’s speech, Acadiana Business visited a Chesapeake-contracted horizontal drilling rig in west Caddo Parish at the 13H-2 well, off Louisiana Highway 169 near Texas. The Trinidad 100E has been working here for a couple of weeks. A little more than a month ago, workers began clearing out 6 acres of pine-tree timber; what once was pristine forest is now a forest with a man-made, working well site at its center.

From up close, drilling is dirty, nasty, dangerous, loud work. The closest most consumers get to this activity is sighted through their car and truck windows as they cruise by a rig. And don’t believe what you may have recently seen on the TV program “Black Gold.” The 100E’s drilling superintendent, Ralph Burnett, scoffs at this “reality” show. “Don’t believe half of that stuff,” the 51-year-old says as he steps up the steep ladder to the main deck.

Right behind him is Chesapeake corporate development director Kevin McCotter. Though lateral (also called horizontal or directional) wells have been around for years, it was maybe five years ago that the necessary computer-aided technology wasn’t even available, McCotter says. This made Haynesville’s spoils out of reach. By some estimates, 80 percent of today’s rigs can’t get to Haynesville’s natural gas. But the Trinidad 100E, one of 14 Haynesville wells online and producing for Chesapeake, can.

McCotter is well aware of the potential for his company — and the residents and government coffers in north Louisiana.

“Hopefully, folks will be good stewards of their new income,” McCotter says. “This [Haynesville] will be a long-term wealth-builder. It’s not just the mineral owners, but the cities, the police juries, the school boards and the libraries that are beneficiaries. We’re a land-centric company, started in 1989, so this is perfect. And the technology is amazing. It’s engineered where the connected pipes start turning about 500 feet before the target, which is the heart of the shale. That’s what makes it so profitable. The geologists I’ve talked to said the wells would not be economical if all you could do was drill vertical. You used to be gathering gas from 200 feet in diameter, but now you have the ability to gather gas from a 5,000-foot lateral section.”

Cars, one day soon, will offer natural-gas propulsion, he says. Gov. Bobby Jindal, he says, recently visited Detroit to persuade Michigan officials to retain certain plants that were set to close. These were plants that would churn out the cars to run on natural gas, which McCotter touts as not only a cleaner-burning, alternative energy source, but also one that makes sense because a full quarter of energy already comes from the gas, and further use will help reduce our dependence on foreign oil.

Burnett says the safer gas is mostly methane and consists of the same stuff that we breathe in and out every day: carbon dioxide and water vapor. His consultant, Craig Ballard of DeRidder, says above the din, “We’ve been drilling laterals for a long time. We’ve got better people, better downhole tools. But the Haynesville Shale is somewhat hot. Temperatures range from 260 to 300 degrees. The tools are better, the labor is better and the mud [to keep the holes from caving in] is better. This looks like it’s going to be bigger than the Barnett.”

Haynesville, however, is deeper and more difficult to drill. The crew has been here 14 days, and the piping is already at 9,000 feet. Burnett says they’ll drill to 12,000 feet and then probably go both north and south with the lateral drilling for about a mile. The 12-hour-on, 12-hour-off crews that go 14-days-on and 14-days-off will be here for 55 days. Then the producing well just sits there, pumping gas through pipelines as long as it’s viable. That could be decades long.

Up on the noisy deck, driller Mark Vaughn of Tyler, Texas, stands over a computer panel in a closed-off, air-conditioned section with a video screen. “Now it’s all enclosed, and you’ve got a bunch of electronics,” Ballard says. “It’s a lot more comfortable.”

Vaughn also has a wide-screen, glass-pane-clear view of his crew: Motorman Jason Thorton of Texas, roughneck Shannon Stewart of Many and foreman Jauron Ford of Bossier City. A derrick-hand, Thomas Kron stands about 100 feet above, and he has to “fall out” [with two straps to hold him] over the piping to guide the 12-foot stretches that are being slammed through the hole in the deck into the hard ground below. They laugh and joke while they perform these chores, but it’s serious work.

“This area was nothing but woods a month-and-a-half ago,” Burnett shouts. “And now we’re going after the vapor.”

That “vapor” — natural gas — has already changed north Louisiana. And it’s the vapor so many people hope will change energy-dependent America.

“Right here in the United States, we’ve got a 120-year supply of natural gas,” McCotter says as he climbs down the exit steps of the rig. “So, it’s just too logical to convert our transportation needs to natural gas. It’s clean, it’s affordable and, best of all, it’s American.”