Natural gas, lignite collide in DeSoto, Red River

By Vickie Welborn
vwelborn@gannett.com

A decision expected within days from Louisiana Conservation Commissioner Jim Welsh could impact the future of lignite mining in DeSoto and Red River parishes and the pocketbooks of electricity customers in the region.

Welsh hopes it doesn't come down to that. He's encouraging a compromise among the oil and gas operators and lignite miners — both of which have lease agreements for natural resources buried in the Earth in the same location — before he releases a formal order.

While the rules and regulations regarding lignite mining are unchanged since it started in DeSoto Parish in the 1980s, the Haynesville Shale natural gas development that is extended into the permitted and leased mining area brought the potential conflict to the forefront.

"I'm optimistic that there can be a compromise. It's a problem that we've had for a long time, but it's recently come to a point that something has to be worked out," Welsh said Friday. "Both have rights to do their business. But the situation is where the answers need to be worked out with the companies."

At issue is the request of Houston-based oil and natural gas company EOG Resources Inc. to create 49 drilling units in the Trenton and Ten Mile Bayou natural gas fields in southeast DeSoto, parts of which are within the permitted lignite mining area. The company wants to extract the valuable natural gas from the Haynesville Shale, but doing so at this stage would isolate millions of tons of lignite sitting on top of the shale.

A similar situation is brewing in Red River Parish in the Oxbow Mine, where EnCana Oil and Gas USA has Haynesville Shale acreage under lease.

Drilling units vary in size, but are typically 640 acres or about a square mile. Welsh has the authority as commissioner to approve or deny the companies' requests.

The pros and cons were debated Tuesday in Baton Rouge in a hearing before Welsh. EOG Resources requested authority to drill the wells but has not yet filed for drilling permits.

Southwestern Electric Power Co. and Cleco, which jointly operate the lignite-fueled Dolet Hills Power Station east of Mansfield, objected to EOG Resources and its selection of well sites. SWEPCO has taken note of Welsh's recommendation to work out a solution and plans to meet with EOG Resources officials to discuss relocation of three wells so "customers are not harmed in the long run and EOG can proceed with drilling that can be a benefit to all involved," Scott McCloud, SWEPCO corporate communications, wrote in an e-mail to The Times.

"Dolet Hills Lignite Company has provided lignite as a low-cost fuel source since 1985 for the Dolet Hills Power Station that benefits the rate payers of SWEPCO and Cleco. Now, for the first time in 25 years, oil and gas operators have moved into our mine permitted area without official notice to SWEPCO or Cleco to set up three wells with plans for 16 in three sections," McCloud wrote. "This drilling activity strands the lignite deposits that were planned for mining. Over 10 million tons of lignite has been identified in this area, enough to fuel the plant for three years and having a value of $300 million dollars."

EOG Resources has drilled and completed seven Haynesville Shale wells in DeSoto Parish and is in the process of drilling more, spokeswoman Elaine Thomas said Thursday.

But neither Thomas nor others contacted with EOG Resources would go into the reasoning behind the company's move to drill without consultation with SWEPCO on future mining plans. An e-mail sent to an attorney who filed EOG Resources' request for drilling units was not answered Wednesday and instead was forwarded to Elizabeth Ivers, EOG Resources' investor relations director.

Ivers asked for questions to be posed in an e-mail. Thomas responded Thursday morning only partly to the questions and provided the following statement: "It is EOG's longstanding policy not to discuss or speculate on our past, ongoing or potential relationships involving other companies."

SWEPCO hopes to create a cooperative agreement with EOG Resources to work together for the maximum recovery of lignite and for the benefit of the landowners and SWEPCO and Cleco rate payers. And since the two power companies soon will be the official owners of the Oxbow Mine, they hope to enter similar talks with EnCana in Red River Parish.

"Some oil and gas operators in the area are cooperating with SWEPCO and Cleco to coordinate drilling activity that can be a model for others to follow," McCloud wrote.

Among those working with SWEPCO and Cleco is Chesapeake Energy Corp.

"In mineral development, it is always Chesapeake's objective to work in a coordinated fashion with mineral owners and landowners to assure the best possible outcomes. When multiple minerals exist, such as lignite and natural gas, it is important for operators to carefully plan extraction activities in a manner that prevents the stranding of resources. At Chesapeake, we are committed to perform in a fashion that optimizes mineral development for mineral owners and responsibly preserves land for maximum use," said J. Kevin McCotter, Chesapeake's corporate development director.

The Louisiana Public Service Commission also weighed in on the discussion in Baton Rouge and its attorney pointed out, Welsh said, that it's important for the ratepayer's sake that lignite reserves are maximized. The manner in which the lignite must be taken from the ground requires large spacing and advanced planning for the massive excavators that dig it from the ground.

"We don't want to lose any lignite down there," LPSC District 5 Commissioner Foster Campbell said Friday. "SWEPCO has a good rate and when the price of natural gas goes up, lignite is one of the cheapest products to make electricity out of. "» SWEPCO is one of the most reasonable utilities in the state, and we don't want to say, 'Hey, we are going to knock out three years of lignite supply here,' because the oil companies need to work with them."

The oil and gas companies do their part by paying severance taxes and royalties. "We want them to drill wells. ... But it's a two-way street, and we don't need anybody being bullheaded. We want to get together and work this thing out."

Welsh, whose office regulates both industries, believes EOG Resources' gas wells can be placed on the section to allow for natural gas drilling and lignite mining. Drilling wells and then adding transmission lines in certain locations would make it difficult or impossible for lignite mining to occur.

"It's going to take give and take on both sides," Welsh said. "It will be a great thing if they can work it out, but I will make a decision within a month or so. That's our goal. I think 30 days will be enough time for them to get together and talk."