Thursday, June 3, 2010

Haynesville Economic Impact Still Strong

Last week, economist Loren Scott released an updated version of his report, "The Economic Impact of the Haynesville Shale on the Louisiana Economy in 2009."  The report was prepared for the Louisiana Oil and Gas Association and examined the impact of spending by the seven biggest producers in the Haynesville Play on the Louisiana side in 2009. 

The report showed direct spending of $10.64 billion, which generated $5.61 billion in household earnings.  The report also claims that the spending led to 57,693 direct jobs.  Along with a high level of direct spending comes increased tax revenue for local and state governments, including higher levels of property taxes, sales taxes and income taxes. 

The authors also project spending from 2010 to 2014.  This is a dicey proposition given the lack of a crystal ball, but what is interesting is that the LA DNR, which provided drilling activity projections, expects drilling activity to peak this year at 720 wells, declining to 510 wells in 2011, 480 wells in 2012 and 450 wells in both 2013 and 2014.  This is logical given the lease expiration schedule of most leases executed in the 2008-2009 range, but it shows that 2010 might be the "high water mark" for activity in the region.

This report is a testimony to the importance of natural gas to the regional and state economy.  It also shows the importance of the Haynesville economy to the state during the worst recession (hopefully) of our collective lifetimes. 

In a previous career, I worked on economic impact reports.  Before we froth at the mouth excessively about the gaudy numbers, it must be said that there is as much art as science in these reports, especially when the client (in this case an industry association) has a specific agenda.  There are a whole bunch of decisions economists make when classifying data and applying multipliers.  Not to malign Dr. Scott or his team, but I am of the steadfast belief that all economic impact reports are by nature fluffy.

But the bottom line is that in 2009 A LOT of money was spent to develop wells, which led to a lot of employment.  Also, a lot of gas was produced, which led to a lot of royalty payments.  All of this spending had a multiplier effect in terms of other spending, employment, taxes and the like as it coursed through the economy.  My point is that the money is real, just don't get too hung up on the actual numbers.

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