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Polar Opposites 

As oil and gas rig counts continue to rise in north Louisiana, Gulf drilling and inshore activity in the state's southern reaches are mired in a slump.

Louisiana's trademark industry has become one of immense contrast in recent years, with northern rigs overtaking operations in the Gulf of Mexico and success favoring natural gas discoveries above oil exploration. A three-year comparison, based on reports prepared by the Louisiana Department of Natural Resources and oil services firm Baker Hughes, reveals that rigs in the northern part of the state have increased by 67 percent, while the offshore counts are down 40 percent in state waters and 16 percent in federal areas. Look at it this way: in 1997, there were 17 rigs drilling in north Louisiana; now there are 60. Meanwhile, in the swampy south, 81 rigs have become 53 over the past decade.

The flow of business is easy to track: Land rigs in the south are being relocated to the north, where prospects are bright, and Gulf outfits have been closing up shop in the face of increased costs. 'There has obviously been a significant shift of drilling resources in the state," says Mike French, the DNR's technology assessment director. 'We're seeing everything move out of the Gulf and further north. We also see a 67 percent increase, mostly from natural gas, in the northern part of the state, a region that is the oldest and most drilled up already. It's really another state boom up there."

French describes the scenario as unique to Louisiana, because most other states are 'experiencing significant drilling everywhere." High oil and gas prices are driving the explosion of activity in north Louisiana, he says, while a slow recovery from the 2005 hurricane season plagues coastal parishes.

Don Briggs, president of the Louisiana Oil and Gas Association, a trade and advocacy group, says Louisiana's newfound obsession with natural gas parallels national statistics. According to Baker Hughes, of the 1,781 rigs currently operating in the U.S., 1,483 are seeking gas over oil. 'There's a whole new gas play in north Louisiana," Briggs says, 'and while the region has a long history, it's not all drilled up. The drilling is going deeper than ever before, 8,000 to 12,000 feet. Because of high prices, it has become economical to do business up there. If prices stay up, this trend could continue."

As for the Gulf's drilling decline, Briggs argues it has very little to do with hurricanes. He said the number of Gulf rigs has been steadily decreasing because there are 'greener pastures out there" and the Gulf has become 'the No. 1 most expensive place to drill in the world." But that won't last forever. 'You're going to see all of that change here before long," Briggs says. 'The independents and huge majors are finding deepwater drilling in other parts of the world to be unfriendly, as far as the geopolitics. The Gulf of Mexico is politically stable" compared to the unpredictable nature of foreign locales such as Venezuela, where oil fields were recently nationalized.

Additionally, Briggs predicts the eastern Gulf will soon be opening up and the drilling response could be unprecedented.

These are strange times for Louisiana's energy sector. At a time when state officials are asking for billions of dollars to implement coastal restoration, hurricane protection and flood control projects, the state fisc is looking better than ever. A legislative money committee recently found another $1 billion surplus " and an increase in royalty sharing with the feds will soon start providing millions annually.

In addition, the state Mineral Board recently reported that Louisiana's income from oil and gas royalties this fiscal year was $522.5 million, an all-time high, and total income from bonus, leaseholder and interest payments was $600.1 million, the highest since 1982.

'These figures, coupled with severance tax income (not yet completed) and increases in drilling activity, all suggest that times of growth and prosperity are upon us," says Department of Natural Resources Secretary Scott Angelle.

But not everyone is jumping for joy. Many, including Republican state Treasurer John Kennedy, believe Louisiana is enjoying a false economy and that the bubble will eventually burst. It's just a matter of time, doubters say, because oil and gas prices won't stay in the stratosphere forever.

David Dismukes, a noted professor at the LSU Center for Energy Studies, says record royalty income has been driven not just by high prices, but also by increased production. The fact that lease sales are generating record income indicates that the industry views Louisiana in a more attractive light today for future energy investments. 'These numbers certainly support the conclusion that Louisiana's proactive resource policies, which have streamlined permitting, eliminated waste, and reduced legal and regulatory uncertainty, are paying big dividends," he says. Jeremy Alford can be reached at jeremy@jeremyalford.com.

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