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August 3, 2010

Greater Shreveport Chamber of Commerce. August 3, 2010. Dr. Loren C. Scott Loren C. Scott & Associates, Inc. www.lorencscottassociates.com. Haynesville Shale. One estimate: 251 tcf of natural gas One of largest natural gas field in U.S. Well production Conventional gas well: 2-3 mmcfd

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August 3, 2010

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  1. Greater Shreveport Chamber of Commerce August 3, 2010 Dr. Loren C. Scott Loren C. Scott & Associates, Inc. www.lorencscottassociates.com

  2. Haynesville Shale • One estimate: 251 tcf of natural gas • One of largest natural gas field in U.S. • Well production • Conventional gas well: 2-3 mmcfd • Fayetteville Shale: 5 mmcfd • Marcellus Shale: 9.8–12 mmcfd • Haynesville Shale: 22-24 mmcfd!!

  3. Impact Methodology • Direct Impacts • How much new $ injected into LA economy in 2009? • Questionnaire sent to firms that operated in the shale in LA • Questionnaire pre-tested • questionnaires received from 7 firms holding about 70% of wells operating in the shale • Adjusted sample to population • Indirect Impacts: • BEA I/O table

  4. .

  5. 2009 Switch from Lease payments to Actual Drilling

  6. Mineral Lease Payments? • Normally: Insert all in I/O table • Assumes 95%+ spent in 2008 • Studies on expenditures out of wealth • Yash Mehra: 5% • Are mineral lease payments like normal wealth or winning the lottery?

  7. Impact Estimates: 2009Assuming 5% of Wealth Spent • $10.6 billion in new business sales • $5.6 billion in new household earnings • 3.5% of LA total • 57,637 jobs • Reference point: 1/10 • 63,600 employed in all non-durable goods manufacturing in LA – chemicals, refining, paper, food products • 59,300 employed in all finance & insurance companies in LA • State lost 38,500 jobs in 2009 (2%) . W/O shale: -96,137 jobs (-5%)

  8. Impact Estimates: 2009Assuming 25% of Wealth Spent • $11 billion (v $10.6 b) in new business sales • $5.7 billion (v $5.6 b) in new household earnings • 60,790 jobs (v 57,637)

  9. Impact: 2009 Tax Collections • Direct taxes: from questionnaires • Indirect taxes: • 7% of new household earnings to state • 5.4% of new household earnings to local governments • Total state and local direct and indirect taxes? • $912.3 mm!!

  10. Local Government Examples • Red River Parish: • 2001: -3.1% • 2008: 71.1% • 2009: 205.1% • DeSoto Parish • FY01: -0.8% • FY08: 3.6% • FY09: 82.2%*

  11. Local Government Examples • Caddo Parish: • 2002: -0.8% • 2008: 7.0% • 2009: 1.4% • Bossier Parish: • 2002: NA • 2008: 4.1% • 2009: 5.5%

  12. E.G.’s Haynesville Shale Spillovers • Energy Transfer Partners: $1.2 bill, 178-mile pipeline • Regency Energy Partners • $47 mm, 46-mile Red River Lateral • +100,000 mmbtu/d of additional capacity • Schlumberger (3/09) • $48 mm investment (finish 09) • 450 new jobs (Q1-10) • Northwest Pipe: • Reopening mid-2010 after 3 years • Relocating recently modernized mill from Portland, OR • +120 jobs @$39,000

  13. Impact on 2009 performance

  14. Losses: 2009 • BTR -4,600 -1.2% • MO -1,700 -1.3% • NO -7,100 -1.4% • Shrev -4,900 -2.7%* • Laf -4,400 -2.9% • Alex -2,000 -3.0% • Houma -3,600 -3.7% • LC -3,800 -4.0% • * Projected last 12 months ago

  15. Forecasts:2010-14

  16. Impacts over 2010-14 • YearSales EarningsJobs • 2010 $16.9 bill $4.3 Bill 111,329 • 2011 $12.0 bill $3.1 bill 76,339 • 2012 $11.3 bill $2.9 bill 69,424 • 2013 $10.6 bill $2.7 bill 62,883 • 2014 $10.6 bill $2.7 bill 60,637

  17. Impacts on State Budget • YearSeveranceIndirectTotal • 2010 $2.1 mm $301.7 mm $303.7 mm • 2011 $12.1 mm $213.7 mm $225.8 mm • 2012 $24.4 mm $210.1 mm $225.5 mm • 2013 $62.6 mm $188.6 mm $251.2 mm • 2014 $94.1 mm $188.6 mm $282.7 mm • *Plus royalties (un-estimated)

  18. Impacts on Local Budgets • YearLocal Tax Revenues • 2010 $232.7 mm • 2011 $164.9 mm • 2012 $155.1 mm • 2013 $145.5 mm • 2014 $145.5 mm

  19. The Threat:Opponents of Fossil Fuels Never Sleep

  20. Shale Plays & Water • Lots of water needed for fracing • EIA: 2-4 mm gallons per well. (Simmons says 7 mm gallons per well) • Where to get this amount of water? • Depletion of aquifers? • What to do with water afterwards • Fluids are mostly water but also contain sand and about 2% chemicals • Groundwater contamination? • Treated & discharged, injected into underground wells, recycled for further use • Government could halt water use under Clean Air Act of 1972 as early as end of 2010

  21. #1: The oil spill Things to consider

  22. Environmental Calamity • Hammering fisheries • But fisheries small in the impacted economies • LA #2 in fish catch; total landed value of shrimp, oysters, menhaden & crab = $248 mm • Total value along northern GOM coast: $661.4 mm • Ditto for recreational fishing: $108.1 mm in LA • Most will make more $s from cleanup than from fishing • BP hired 1,300 boats @ $1,200-$3,000 per boat + $200 per deck hand ($560 mm over 180 days)

  23. Environmental Calamity • Tourism: Very bad from East of Mobile Bay to tip of FL • About 50,000 condos from Pensacola to Panama City • Economies here are tourism and military • Should be short run • Little impact to the East – LA & MS

  24. Oil & Gas industry:The Moratorium • Moratorium on deepwater drilling (now any wells using sub-sea BOPs or surface BOPs on a floating facility) • Drill ships (@$250k-$500k per day) will declare force majeure & leave for Brazil, West Africa, Australia---sign 3-4 year contracts in new location (Diamond Drilling has already moved 2 ships) • 33 rigs impacted (?); about 8,000 direct jobs • Direct wages @$1,800 per week: about $748 mm a year • Multiplier effect: about 30,000 – 35,000 jobs

  25. Oil & Gas industry:The Moratorium • Moratorium Study Commission • Not a single member with the skill set to analyze the problem • Loaded with anti-fossil fuels people • Frances Beinecke – President of Natural Resources Defense Council • Don Boesch – President of U. of Maryland Center for Environmental Science • Terry Garcia – Ex. VP for Missions Program for National Geographic • Frances Ulmer – Chancellor of U. of Alaska Anchorage & member of Aspen Institute’s Commission on Artic Climate Change & Member of Alaska Nature Conservancy • Bob Graham, retired congressman from FL • Co-Chair William Reilly: First meeting in mid-July and report “next year”

  26. Oil & Gas industry:The Moratorium • Morgan Stanley • 5% chance lasting 6 months • 60% chance lasting 12-18 months • 35% chance lasting up to 4 years

  27. Oil & Gas industry:The Insurance Issue • Impacts of the spill on insurance costs in general • Actuaries in insurance companies have seen the spill: “Oh shoot!” • Moody’s Investor Services study: Already • Shallow water: +25%; deepwater: +50% already • Raising liability cap from $75 mm to $10 billion • Result: Independents driven out of the Gulf

  28. Oil & Gas industry:The Governance Issue • Plethora of new bills introduced into Congress to regulate the industry and force the industry to pay for the regulation. • Meeting w Boggs Law Firm: • CEOs of companies drilling in Gulf must certify that operations in Gulf in full compliance with all MMS regulations: Criminal penalties. • Shifts MC curve upward = less activity • Wood McKenzie 5/10 report: 10% increase in development cost renders 7 current discoveries in the Gulf uneconomical.

  29. Other Key facts • Measurement of spill non-trivial to BP • Fines based on volume of spill: $4,300 per barrel (?) • 3X higher if criminal fine • Through mid-June: w/o criminal penalty - $4.3 to $8.6 billion • Shut down the GOM: Silly • 33% of US oil production from the GOM • 18.7% of US oil production from deep waters • 10% of US natural gas production from GOM • 5% of US natural gas production from deep waters • Just switch to alternative energy like wind and solar: Equally silly

  30. Wind Power • Four pivotal limitations; • Intermittency: • When will the wind blow? • When it is not, need base load electrical generating capacity from traditional sources • Cost • People do not want to live near them • Billboards no; windmills yes???

  31. Windmills – Bird Kills • Altamont Pass - 50-square mile site between San Francisco and the Central Valley in Diablo Mountains: 4,000 windmills • July 2008 study: annual bird count: 10,000 birds • 1,300 raptors: Golden eagles (80 annually), red-tailed hawks, burrowing owls & others • Windmills in Blackbone Mountains in VA: • 2004 research – killed 4,000 bats

  32. Robert Bryce in “Power Hungry” “If you are anti-carbon and anti-nuclear, you are pro brownout.”

  33. You worried about spills? How about this one?

  34. Red Ink Spill

  35. #2: Obama’s Proposed Tax

  36. Obama’s Energy Policy • $36.5 billion tax on the extraction industry • Eliminate expensing of intangible drilling costs • Eliminate allowance for percentage depletion • Repeal of domestic manufacturing tax deduction for O&G companies, making refiners the only domestic manufacturers not covered by the manufacturing tax credit.

  37. Oil Companies Don’t Pay Taxes • Robert Shapiro and Nam Pham study of oil company stock ownership • 43% owned by mutual funds and asset management companies that have mutual funds • 55 million Americans • Medium income: $68,700 • 27% owned by other institutional investors like pension funds • 2004: 2,600+ pension funds run by federal, state and local governments held $64 billion in oil company shares • 14% held in IRA’s and personal retirement accounts held by 45 million Americans

  38. Energy Companies Don’t Pay Taxes? • 2009 US Chamber of Commerce study • Income taxes as a share of net income before taxation: • All manufacturing in US: 26.7% • Oil & Gas industry: 40.4%

  39. Greater Shreveport Chamber of Commerce August 3, 2010 Dr. Loren C. Scott Loren C. Scott & Associates, Inc. www.lorencscottassociates.com

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