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Wells in state waters may produce up to $1 billion for education

A bill to take the oversight of oil and gas drilling in the state from the Department of Environmental Quality (DEQ) and place it under the Mississippi Development Authority (MDA) passed both houses of the Legislature and at press time was awaiting Gov. Haley Barbour`s signature to become law, effective July 1. Discussions of drilling in the state`s coastal waters has been at the forefront of this bill.

Sen. Bob Dearing (D-Natchez), chairman of the Senate oil and gas committee, says it could be the biggest economic development bill passed in the Mississippi Legislature this year or for several years to come. Rep. John Reeves (R-Jackson), chairman of the House oil and gas committee, says the state has an obligation to the school children to tap into the state`s oil and gas reserves.

Rep. Roger Ishee (R-Gulfport) said the change from DEQ to MDA was necessary to avoid a conflict of interest that exists while DEQ is responsible for leases and any environmental issues such as oil spills that might arise. He feels oil and gas companies won`t do business with the state under the present law.

The new law will prohibit drilling in state waters north of the barrier islands. This restriction came about in part because of response to the tourism and gaming industries that voiced concerns about the impact drilling rigs would have near the shore. Sen. Tommy Gollott (D-Biloxi) and Sen. Billy Hewes (R-Gulfport) introduced the amendment to restrict drilling in the Mississippi Sound. Dearing and Reeves pointed out that the present law allows drilling to take place anywhere.

Dearing says oil and gas industry lobbyist Joe Sims told him that preliminary seismic studies showed gas deposits in offshore waters and that response was excellent from letters sent to drilling companies to see if there was any interest.

“I started working on this bill in October, never knowing I would be chairman of the oil and gas committee,” said Dearing, who`s been a member of the committee for many years. “I asked for a study from the Mississippi Mineral Resource Institute showing the potential for gas drilling and presented it to the committee.”

Dearing, who`s been in the Senate 25 years, introduced the measure with 20 co-authors, none of whom are from the coastal counties. “I felt no obligation to go to the coastal delegation and confer before introducing it,” he said in answer to an opinion that senators from the coast were caught off guard. “It is our responsibility to see what the bills are and to read them. It was not my intention to blindside anyone.”

He says he may have gotten an e-mail or two from concerned citizens but none after the Gollott-Hewes Amendment was added to the bill.

“I got a lot of calls from the gaming industry,” Ishee said. “I think it frightened a lot of people who don`t want to see drilling rigs in the Sound.”

Ishee added that anyone in Harrison County would have to see over 12 miles to be able to see the rigs, and that there are shrimp boats with taller masts than the rigs he predicts will be used in state waters.

A petroleum engineer with years of experience in the industry, Ishee says gas companies are interested in shallow drilling at the present time.

“They would not be going deep like the drilling in Louisiana,” he said. “From all indications, we don`t have any deep wells here. Seismic studies show that we have the same formation as those in Alabama and those are drilled two miles, not like the five-mile-deep wells I worked on in the Gulf.”

The law, however, does not limit the depth of drilling by oil and gas companies and they would not sign leases if it did, he said.

The Gulfport Republican said he heard about the bill and wanted to know more about it. Because of his technical knowledge he was made an honorary member of the oil and gas committee and helped answer questions when the bill was presented on the House floor.

“It was never controversial at the Capitol,” Reeves said. “Bills and committee meetings are public record and dates of meetings are posted.”

He says the bill was not the governor`s initiative but was started by the oil and gas industry to get some interest in extracting these resources from state reserves. Mississippi is the only state that has untapped reserves, he added.

Furthermore, Reeves, an attorney, says that under the “rule of capture” legal doctrine, Louisiana and Alabama can usurp Mississippi`s resources. The doctrine holds that oil and gas are “fugitive substances” and as such are considered owned by the first one to capture.

“With underground gas reservoirs extending for miles, crossing state borders, lease holders in Alabama and Louisiana, and federal waters for that matter, are able to capture gas which is underground in Mississippi by drilling the well and extracting the gas from non-Mississippi sites,” he said. “They owe us nothing for it under this legal doctrine.”

Drilling is presently active offshore in both states and in federal waters that begin three miles south of Mississippi`s barrier islands. The most recent lease in Mississippi was granted in 1988.

Under state law, two-thirds of the revenue generated from the extraction of minerals must go to the state`s education trust fund.

Rep. Hank Zuber (R-Ocean Springs) sponsored an amendment that requires the remaining revenue to be returned to cities and counties where the drilling occurs.

“If and when drilling starts, we’re looking at a major cut for property taxes,” he said. “I feel good about lowering taxes.”

According to Reeves, the MDA will set up regulations and the state should see gas extracted in 18 months if all goes well.

“It may result in an amount from $250 million to over $1 billion for a 15- to 25-year period at current prices. It depends on how fast they extract it,” he said.

In addition to drilling restrictions for the Sound, the new law also avoids drilling in areas with large oyster reefs. Each area or block where drilling is permitted consists of three square miles. There are four blocks off the coast of Jackson County and two blocks in Hancock County where drilling is permitted. All federal islands in the Gulf Islands National Seashore have a one-mile buffer zone. The new state drilling law will add that same buffer around Cat Island, which is not a federal island.

“The oil companies didn`t ask for them but these were added to make drilling more attractive,” Ishee said. “These blocks join areas on land they indicated an interest in.”

Reeves said environmental concerns have been addressed and that all the advice his committee was given is that this drilling is safe.

“There are no negative effects and no pollution,” he said. “Everything we do in life has risks. There are significant reserves of gas worth a lot of money and we have an obligation to give it to the state`s school children.”

Dearing said that unlike oil spills, gas spills evaporate and that a positive side effect of the rigs is that fish gather around them allowing good recreational fishing.

“There was nothing ulterior at all about this bill,” Ishee said. “The state needs the money and we can`t deny this potential. State code encourages the development of oil and gas.”

Contact MBJ contributing Lynn Lofton at mbj@msbusiness.com.

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