Turk File

Turk File 03.30.11

by Leslie Turk

Parallel Argument
Lawmakers side with energy industry over taxing horizontal drilling.
By Jeremy Alford

Two legislative oversight committees voted March 14 to reject a proposed set of rules created by the Louisiana Tax Commission that would have increased state taxes on certain drilling rig operators.
Parallel Argument
Lawmakers side with energy industry over taxing horizontal drilling.
By Jeremy Alford

Two legislative oversight committees voted March 14 to reject a proposed set of rules created by the Louisiana Tax Commission that would have increased state taxes on certain drilling rig operators.

Under a 1994 law specific to horizontal drilling, the energy industry has been exempted from paying about $220 million in natural gas severance taxes from production in northwestern Louisiana's Haynesville Shale and other areas.

After lawmakers sided with the industry, it was then Gov. Bobby Jindal's move: he could have either approved the committees' votes, vetoed them or took no action at all, in which case the committees' determination would have stood.

The Associated Press reported March 24 that Jindal does have a stance. The governor told reporters that he would never sign into law any change in the tax exemption for drilling in the Haynesville Shale. After speaking in New Orleans to the Louisiana Mid-Continent Oil & Gas Association, Jindal added that repealing or lowering the exemption would simply drive energy companies - and their jobs - to shale formations in other states, according to the AP. Like Jindal, other opponents maintain that the changes would stifle the current $10 billion investment in the north Louisiana's record-setting shale play.

All of this is just the latest incarnation of a longstanding feud that historically pits parish assessors against the oil and gas lobby. It played out theatrically at the mid-March joint meeting of the House Ways and Means Committee and the Senate Revenue and Fiscal Affairs Committee, where the tax commission rules were first overturned.

The tax commission adopted the rules in early February, which stipulated that lateral sections of drilling rigs should be provided a value and taxed. Previously, the commission only recognized the vertical portion of wells and rigs as taxable.

These horizontal sections branch off of the vertical pipe that's used to drill down and can often parallel the reservoir. It's a technique being used widely in shale plays and under limited circumstances closer to the coast.

Belinda B. Hazel, a member of the tax commission, told lawmakers that the commission should have implemented the tax long ago, since it has a constitutional charge to tax everything and everyone fairly. "We didn't have a choice," she said.

A sizable contingency of business interests asked the committee to reject the commission's new rules based on the argument that the horizontal sections of natural gas wells have no value. Don Briggs of the Louisiana Oil and Gas Association said horizontal pipes are often "shattered" after being used to extract natural gas and other minerals. "You really couldn't pull much out of the ground if you wanted to," he said.

The new rules were also opposed by the Louisiana Association of Business and Industry.

Hazel, along with the Louisiana Sheriffs Association, Louisiana Assessors' Association and library directors from around the state, countered that horizontal pipes do have value. "You wouldn't sell [a rig] to someone and then exclude the value [of the horizontal section]," she said. "This is a simple issue."

"You cannot add value to a hole in the ground," said Chris Dicharry, attorney for LOGA, referring to inactive rigs. Joey Vercher, another member of the tax commission, said he had "no way of knowing" how much money the proposed tax rules would pull in, but he does know that 60 percent of the funds would go to the schools in the parish where the taxes are collected and the remaining 40 percent would go to local governments.

Plaquemines Parish Assessor Robert R. Gravolet, chairman of the assessors' association's oil and gas committee, said Louisiana's energy industry already gets enough preferential treatment. "The overwhelming advantage goes to the side of industry," he said.

Briggs vehemently disagrees, arguing the new rule will increase the assessed values of rigs in the shale by more than 150 percent. Parish assessors, however, say cost values for oil and gas properties would only be increased by slightly more than 4 percent.
Either way, it appears local taxing bodies may not be in line to receive additional tax dollars over the next year.

Plaquemines Parish Sheriff Jeff Hingle said that could result in some local governments asking voters to approve higher millages in the coming months. "If this body overrules this tax commission, my taxes will be going up again," Hingle said.

Jeremy Alford can be reached at [email protected]

**AT&T, T-Mobile deal under microscope
The proposed mega merger between AT&T and T-Mobile USA has some major regulatory hurdles to clear.

The merger was announced Sunday, March 20, and by the following morning had ignited a fierce battle among politicians in Washington and consumer groups who fear it will lead to higher prices.

As expected, competitor Sprint is voicing its opposition to the whopping $39 billion deal, the biggest acquisition worldwide in more than a year. Itself viewed as a potential merger partner for T-Mobile, Sprint's objections appear self-serving, as it will be one of the companies hardest hit if the deal materializes, but most industry experts agree close scrutiny is needed to protect consumers from potential price hikes and less choices if the market is overly concentrated. The FCC, because of the transfer of wireless spectrum licences, must approve the deal, and the Department of Justice will likely review it for antitrust issues.

The proposal combines the nation's second largest mobile phone carrier, AT&T, with the fourth largest. "If approved, the merger would result in a wireless industry dominated overwhelmingly by two vertically-integrated companies that control almost 80 percent of the U.S. wireless post-paid market," said Overland, Kan.-based Sprint in a statement. "AT&T and Verizon are already by far the largest wireless providers. A combined AT&T and T-Mobile would be almost three times the size of Sprint, the third largest wireless competitor."

Investors drove Sprint's shares down by 69 cents, or 14 percent, to $4.36 Monday. At one point shares were trading as low as $4.17.

Regulators are expected take up to a year to study the proposal and would likely require some divestitures and expansion of rural coverage if the deal wins approval.
- Leslie Turk

UL bracing for more budget cuts

Already, Louisiana four-year colleges receive fewer state-funded dollars per student than any other Southern state, according to the Southern Regional Education Board. That doesn't look like it's changing anytime soon.

In the past few weeks, rumors of department closures and cutbacks have blazed through UL Lafayette. Students and faculty were far from encouraged by Gov. Bobby Jindal's recent visit to the campus, taking it as a sign of more to come instead of hope for a reprieve.

Those suspicions were confirmed March 21 when he released the 2011-2012 budget plan that included tuition increases and a warning to prepare for at least another 10 percent cut this year. UL has already lost more than 20 percent of its state-appropriated funds. Fear and anxiety - even anger - among students has continued to rise.

However, UL's assistant vice president for academic affairs, Dr. Carolyn Bruder, claims the university is well-prepared for the coming cuts and is implementing a plan to protect its students, faculty and academic integrity. According to Bruder, the preparation began in April 2010 with a massive review of all of the departments and programs.

"We used a specific set of criteria to evaluate every program, as well as taking a look at other places where this is happening," she says. The university then produced a list of recommended departments to consider for reorganization or elimination, which was presented to UL President Joe Savoie this past January as a multi-year plan involving merging, redesigning and eliminating specific departments.

"Ultimately, we are trying to build degree programs that serve today's students, degrees that offer students flexibility in their job search," Bruder says. "Every student currently enrolled will be able to finish their degree, even the freshmen. No department closures will occur until the last student enrolled finishes their curriculum, probably in three years or so."

She also explains the university's decision-making process: "We evaluated whether or not the degree programs supported the university's goals and students, as well as our area. We researched job assessments and projections over the next 10 years in Louisiana, as well as the nation, and evaluated the benefits of these programs to the students."

Three programs are being completely eliminated: technical and industrial arts education, agricultural education and consumer science education, having graduated a combined total of four students in the past three years.

Seventeen others were selected for reorganization or consolidation with another program, such as the German language program. With only four student majors, it will be combined with the existing modern languages degree.

The fashion design department is also being eliminated, but the fashion merchandising section of that degree is being incorporated into the marketing program as a specialized minor.

The renewable resources degree, left over from the old agricultural school, is being updated into an environmental science major and integrated into the university's new School of Geosciences.

Many of these changes will be finalized by the Board of Regents on April 27 with undoubtedly more to follow.

"We are very cognizant that higher education cannot be all things to all people, and we will continue to balance the education needs of the state with available resources," maintains University of Louisiana System President Randy Moffett.

Bruder, however, assures students that the academic programs are priority, with other ventures being cut first. "Our institution, in an effort to protect our academic core, has had to pull back on some of its research and community programs, like the Small Business Development Center, which works with local businesses," she says. "If we have further budget cuts, the community will really begin to feel it. We appreciate the patience and support of the students and community. Lafayette has always supported the University of Louisiana, and that is a large part of our success." - Marie Labro
**Bad attitudes on drilling shifting
For Louisiana's offshore oil and gas industry, the news just keeps getting better: On March 22, federal officials cleared Exxon Mobil's deepwater drilling permit, a revised permit to drill a new well approximately 240 miles off the Louisiana coastline, south of Lafayette in 6,941 feet of water (the Deepwater Horizon was 5,000 feet). It was the fourth in a month. Two days later, the "permatorium" finally ended when the feds approved the first permit for completely new exploration in the Gulf of Mexico since the April 20 Deepwater Horizon disaster, saying Chevron Corp. had shown it could contain a subsea blowout.

The good news hit just as the Pew Research Center released a report on a turn in the public's views toward offshore oil and gas drilling: 57% favor allowing more oil and gas drilling in U.S. waters, up 13 points since last June.

Not surprisingly, notes Pew, public support for the increased use of nuclear power has declined amid the ongoing nuclear crisis in Japan. Currently, 39% favor promoting the increased use of nuclear power while 52% are opposed. Last October, 47% favored and 47% opposed.

While drilling support has jumped by nearly 20 points among both Republicans and Democrats, Pew found a sizable partisan divide in these opinions remains: 81% of Republicans favor more U.S. offshore drilling, compared with 54% of independents and 46% of Democrats. - Leslie Turk
**TriStar Graphics Group has new owner
TriStar Graphics Group's new owner is a familiar name in the local printing biz. Benson Young, who lived in Lafayette for 20 years before moving to the Mississippi Gulf Coast, has returned home to purchase TriStar Graphics Group.

Terms of the deal were not disclosed. The acquisition includes manufacturing operations in Lafayette, located at 107 Commission Blvd., and Monroe, as well as Monroe-based American Envelope Company.

TriStar Graphics Group has 43 full-time employees and specializes in commercial offset, digital and envelope printing. Its previous owners, Mike Guidry of Lafayette and Bob Devinney of Monroe, will remain as executive management until their retirement from the 22-year-old company. Benson, who has two decades of experience in the printing and graphic arts industry, tells ABiz he'll lean on their expertise during the transition. "Mike and Bob aren't retiring on a set schedule; we're taking our time with the transition," he says. "I value their advice and guidance in running the company they built. Right now, it looks like they will retire around the end of the year, possibly sooner."

A New York native, Young grew up in Lafayette. The 41-year-old's background in this market was centered around the prepress/printing world, he says, having worked for Pixus Digital, Express Printing and as a prepress/technology consultant for a client list that included Calzone & Associates, Graham Group, Davis Partners and Andrepont Printing. He also worked for TriStar for four years, helping to build the Lafayette plant. "You may remember a lot of those old-school players back then," Benson says, "Bill Dalton, Lynn Craddick, John Crisp."

Young spent the past 11 years in Mississippi, primarily as chief technology officer for Knight-Abbey in Biloxi. He returned to Lafayette specifically for the opportunity to acquire TriStar.

In addition to providing printing services, Young says he is investing in a major expansion of TriStar into direct mail, variable data marketing, and fulfillment services, which will create several new jobs in the area. "Technology has changed the way we communicate, and businesses are changing the way they market themselves to develop customers," he says. "Printing is only part of our customers' needs, and we will evolve with direct mail and communications services."

Founded in 1988 in Monroe, TriStar Graphics Group expanded its Lafayette sales office in 1996 with the addition of a second printing plant. It is today the largest commercial printer in the Acadiana area. "There are many innovative companies in the area, which presents a unique opportunity for strong partnerships," Benson says. "It feels great to be home." - Leslie Turk