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Mississippi’s oil industry pumping money into state

Mississippi remains the nation’s 13th ranked producer of crude oil, with nearly 1,500 producing oil wells and 10 rotary rigs in operation. Four refineries in the state include the Chevron refinery at Pascagoula; Colonial Pipeline and Dixie Pipeline have a network of terminals and storage facilities. Twelve major natural gas pipelines traverse the state.

However, it’s difficult to gauge the oil industry’s economic impact on Mississippi because a study has never been done, said Joe Sims, president of the state’s U.S. Oil and Gas Association.

“Mississippi is an important energy state,” said Sims. “Our energy assets and infrastructure include 12 major natural gas pipelines, a major refinery and several smaller refineries, oil and natural gas production, petroleum and petroleum products pipelines, abundant electricity generation and lignite resources. This industry has existed in Mississippi for over 60 years and contributed significantly to the economic growth in the state. We work every day to help provide energy and energy solutions for consumers in the state, the region and the nation in a safe and environmentally sensitive manner.

“We have opportunities for growth because the potential exists for continued onshore exploration for deep and shallow natural gas in both traditional and newer areas of the state, lignite coal development, offshore natural gas development, continued expansion of the existing pipeline network, natural gas storage and refining facilities. Further, we currently have the prospect of having facilities in Jackson County to receive imported natural gas from abroad.”

Last year, Mississippi oil and gas producers paid about $60 million in severance taxes, with two-thirds going to the general fund and one-third earmarked for the county where the production occurs. (The severance tax is roughly 6% of the gross value of oil and gas produced.) Jasper County was the top oil-producing county, followed by Jones, Lincoln, Wayne and Pike counties, all of which reflect the presence of Plano, Texas-based Denbury Resources Inc., (NYSE: DNR), which produces 45% of Mississippi’s oil and natural gas.

“We have pipelines in the initial stages of major expansion in the state,” said Sims. “The reason is to meet the market needs of the southeast region of the country, like Florida. The market is telling the investment community to expand so we can have a stronger infrastructure. They are in the initial stages but we’re looking at what could be a huge boost to pipeline infrastructure.”

In 2005, the total wellhead value of oil and gas production in Mississippi topped $1 billion, roughly the same amount of money that oil and gas producers have paid in severance taxes to the state since significant production began in the 1940s.

“If you look at production, transportation, refining and lignite mining, which is growing in the state, it’s easily a multi-billion dollar industry,” Sims pointed out.
Despite the promising future and recent good news, the impact of Hurricanes Katrina and Rita bruised the oil industry along the Gulf Coast, from Corpus Christi, Texas, to Tampa, Fla.

“Because of the infrastructure in the Gulf Coast region, virtually all of the offshore oil production and 80% of the natural gas production was knocked out due to the storms,” said Sims. “The Gulf Coast region includes some 4,000 offshore platforms in federal waters, dozens of refineries and natural gas processing plants and hundreds of transportation and marketing facilities.”

The offshore production contributes nearly 30% of the nation’s crude oil production and approximately 20% of the natural gas production.

“The damage brought by these unprecedented storms exacerbated an already tight market in terms of supplies of energy and demand,” Sims explained. “The circumstances caused gasoline prices to jump and we are still feeling the impact on natural gas and oil prices.”
Sims estimated that oil production in the Gulf has returned to 90%.

“Some platforms will be months getting back to their capacity,” he said. “The paths of Katrina and Rita came right up through the heart of Gulf of Mexico production. That experience was a real wake-up call to everyone about how much we’re dependent on the Gulf of Mexico and the refineries along the coast.”

Mississippi’s outlook as a top oil and gas producing state remains bright, said Sims.

“Today, we have high interest in new wells, particularly in non-traditional areas like the northeast and northwest part of the state,” said Sims. “Mississippi has potential for much more natural gas production. Oil exploration is limited, but the (new) Denbury project (Denbury) will be historic in the way it affects oil production in the state.

“The industry considers Mississippi a good place to do business. The political leadership and regulatory agencies have been supportive when they can and we respect their regulatory role. Mississippi has a reputation in the industry as having a ripe investment climate.”

Contact MBJ contributing writer Lynne W. Jeter at Lynne.Jeter@gmail.com.

About Lynne W. Jeter

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