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Record-high prices fuel oil, gas production in state

As might be expected with record-high energy prices, oil and gas production in Mississippi is booming.

“The producers and even some private individuals especially in Mississippi and Alabama are punching as many holes in the ground right now that they can to take advantage of the higher prices,” says Norman Rodgers, president, Mississippi Natural Gas Association, and regional manager for Atmos Energy Marketing, Fairhope, Ala. “No one knows for sure where this market will end up. All we can do is follow the data that is out there like crude oil prices, weather, storage gas and the weakening dollar.”

Oil production in Mississippi has increased significantly in recent years from 14,405,919 barrels in fiscal 2005 to 24,757,053 barrels in fiscal 2006 and 23,065,029 barrels in 2007. Much of that is due to advanced oil recovery from injection of carbon dioxide in mature oil fields.

Gas production for fiscal 2005 was 83,714,320 MCF (represents 1,000 cubic feet) followed by 67,387,667 MCF in 2006 and 89,601,817 MCF in fiscal 2007. Several taxes are based on the value of the product sold, not the amount, so there isn’t an exact correlation between severance tax revenues and production. Total state gas severance tax collections in Mississippi totaled pproximatelyt $31 million in fiscal 3005, $41 million in 2006 and $32 million in 2007.

The biggest producing counties were Jefferson Davis at approximately $7 million in fiscal 2007, Lamar County at $4.7 million, Covington County at $3.5 million, Oktibbeha County at $1.9 million, Marion County at $1.6 million and Rankin at $1.4 million.

Mitch Stennett, president of the Economic Development Authority of Jones County, said the county is seeing an impact from increased activity.

“The sales tax collections for the cities of Laurel and Ellisville and the town of Sandersville have all increased noticeably (especially the town of Sandersville) partially because of increased sales taxes from oil service companies,” Stennett said. “We also have somewhere over 100 pipeline workers basing out of Laurel that are laying two pipelines in the area. One touches the southern edge of Jones County and one is just north in the Jasper County area.”

Oil and gas prices have gone up considerably since the fiscal year ended June 30, 2007.

“The crude market has increased from a normal of $24 to $25 per barrel a few years ago to more than $100 per barrel,” Rodgers said. “Most of the crude oil is coming from the Far East, and most of the natural gas is coming from the U.S. Any energy whether electrical power, natural gas, crude oil, heating oil or gasoline all follows each other. If one goes up, it pulls up the others in trading, unfortunately. When one goes up, people switch to another source. If heating oil goes up because oil is up, then it will drag natural gas up with it.”

Because of a colder winter than average, more natural gas was pulled out of underground storage cavities than in the winter of 2006-2007. The season is expected to end with approximately 300 billion cubic feet storage less than a year ago. Storage has to be refilled in case of disruptions of supply from hurricanes or strong demand due to extremely cold weather. That means 300 billion cubic feet of gas have to be purchased, which is likely to keep demand and prices high in the warm months.

“That isn’t good on pricing, because along with supply and demand issues there is also the high cost of crude oil and the fact that weather has been against natural gas,” said Rodgers, whose company provides natural gas to approximately 100 industries in the state and a large number of municipalities. “And now as soon as winter is over, we enter the hurricane hype. Will there be hurricanes or not? Just the talk of hurricanes normally jacks up the price of natural gas. So, the outlook is not good. Anytime there is even a tropical depression in the Gulf, natural gas is going to skyrocket in price.”

Opening new areas to production?

The high cost of oil and gas is sparking calls for production of oil and gas in areas that have previously been off limits.

“I feel confident there is enough natural gas in the U.S. to meet our needs in the future with the expected growth in demand for it, but a lot of it is not available to us because production isn’t allowed off the coast of Florida, the West Coast, the East Coast and parts of Canada. This natural gas that could give us relief down the road is not accessible at this time.”

Atmos Energy Marketing tries to help customers with increased costs by offering them reduced transportation rates on pipelines and by buying gas in the futures market. But purchasing in the futures market is speculative. Gas prices can go up or down. It’s anyone’s bet.

Big gas consumers are also ramping up efforts to be energy efficient.

“They are trying to be as efficient as they can with every BTU that flows through their systems right now,” Rodgers said. “They are trying every energy-saving method they can. The high prices are having a big impact. Several companies have already closed down. Others will pass on that higher cost to the consumer. So, it is more than just an energy crunch. It is going to funnel on out into the community just like gasoline is with higher transportation costs causing food to go up. Everything is going up with energy costs increasing, and that doesn’t help our economy at all.”

Mature oil in Mississippi

Joe Sims, a representative of the U.S. Oil & Gas Association, MS/AL Division, agrees that high prices are encouraging new projects.

“Mississippi is remaining very active for drilling for natural gas and enhanced oil-recovery activities,” Sims said. “Our activity has not slowed at all, and a lot of the traditional counties are active.”

Most of the easily recovered oil in the U.S. has already been produced and consumed. Sims said across the country approximately 90% of the rigs operating are drilling for natural gas because there are new plays, new ideas and new projects in natural gas.

Oil in Mississippi is pretty mature. Sims said Denbury Resources, the largest independent oil producer in Mississippi, is using natural carbon dioxide to inject into old oil fields to lift the oil for recovery.

“That is the most significant activity going on with oil,” Sims said.

There is a lot of excitement in neighboring states about major prospects for economic development from natural gas found in shale formations.The natural gas in a formation known as the Fayetteville Shale in North Central Arkansas is projected to have a $17.9-billion impact from 2008-2012 creating more than 11,000 new jobs and $1.8 billion in state taxes.

“Alabama also has some real exciting shale play going on,” Sims said. “Their drilling is probably more interesting than Mississippi’s. They have had a little more success on the shale than Mississippi.”

Contact MBJ contributing writer Becky Gillette at 4becky@cox.net.

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