Lake in the Haynesville Shale at center of state-federal dispute
by Jen DeGregorio, The Times-Picayune Saturday November 22, 2008, 8:00 PM
In the midst of a rush to tap what could be the biggest natural gas discovery in the country, Louisiana is entrenched in a heated legal battle with the federal government over control of a sprawling lake that holds a portion of the underground treasure.

The fight over 17,000-acre Lake Bistineau predates the recent frenzy over the Haynesville Shale, a sheet of sedimentary rock that spreads underground from Texas through a six-parish region of north Louisiana. After an energy firm revealed in March that it believed the shale held an unprecedented level of natural gas, companies started flocking to the area to buy up property, offering as much as $30,000 an acre for land that once garnered a few hundred dollars per acre.

The fervor added a sense of urgency to Louisiana's 4-year-old ownership dispute with the Interior Department over Lake Bistineau, which sits on the eastern edge of the Haynesville Shale in Bienville, Webster and Bossier parishes. The State Mineral Board is eager to capitalize on demand for the shale, which has driven up bid prices during the board's monthly auction of public land leases. A single auction in August generated $93.8 million, nearly $30 million more than the board earned during all of the last fiscal year.

Yet bidders have shied away from tracts recently offered in Lake Bistineau. Several companies "have been reluctant to lease the water bottom because of the ownership dispute between the State and Interior, and the resulting possible liability," according to a recent letter from the state attorney general's office to the U.S. attorney's office in Shreveport. That means less money for Louisiana, which deposits the bulk of lease proceeds into its general fund.

In the Oct. 30 letter, the state proposes a compromise with the Interior Department to encourage future bidding on Lake Bistineau. The deal would place in escrow any money Louisiana receives from leases or fuel production in the lake. The funds would remain in the account until the state and Interior Department resolve the matter.

"This agreement would benefit both the State and Interior, as one or the other is currently losing potential lease income from the Lake Bistineau water bottom, which is in the Haynesville Shale," the letter said.

The state is awaiting response from the U.S. attorney's office, said Terry Hessick, the assistant attorney general who is representing the state in the case.

Gas production from Lake Bistineau could ultimately mean millions, and even billions, of dollars for the winning government. During the fiscal year that ended in June, the state earned $62.9 million from leasing. The real money comes once the leases begin producing fuel, however. Last fiscal year, the state generated $658 million in oil and gas royalties and more than $1 billion in severance taxes, according to data from the mineral board.

Although the tug of war over Lake Bistineau recently reached a fever pitch, the issue appears to have arisen by accident nearly a decade ago.

In late 2004, Devon Energy Production Co. sued the federal government over an 80.6-acre mineral lease on land bordering Lake Bistineau in Webster Parish. The lease dates to 1923 but was transferred to Devon after October 2000, according to the lawsuit filed in the U.S. District Court for Louisiana's Western District.

A separate lease that Louisiana granted in 1999 overlapped with a portion of the area Devon controlled with the federal lease. In its 2004 suit, Devon asked the court to protect its rights as a federal leaseholder against any encroaching claims by Louisiana or state leaseholders.

The suit quickly evolved into an argument over which government controls mineral rights for regions of Lake Bistineau and its surrounding land. Not only does the Interior Department want a claim to future leases in parts of the lake, but the agency has accused the state of trespassing with some of its existing leases.

The federal government wants Louisiana to repay any earnings from disputed leases. The state has earned $4.7 million from six leases in Lake Bistineau, according to a Patrick Courreges, a spokesman from the Department of Natural Resources. However, it is unclear how much would be subject to the Interior Department's claim. The federal government does not hold any water bottom-leases in the lake, although the Interior Department has issued several leases on adjacent land, according to Hessick.

The Lake Bistineau debate hinges upon the court's interpretation of esoteric laws defining navigable waterways and states' rights. The case has created reams of paperwork, including copies of centuries-old correspondence between Louisiana and the federal government. The case is scheduled to go to trial late next year, although the two governments could settle the suit before then, according to Hessick.

The central flashpoint is over Lake Bistineau's navigability. As a general rule, states maintain sole mineral rights to lands beneath navigable waterways within their borders, Hessick said. Determining whether a waterway is truly navigable, however, becomes an exercise in semantics.

The federal government contends that Lake Bistineau is not a true navigable waterway and, as such, gives the United States a claim to underwater mineral rights. The argument presents arcane theories about the origin of Lake Bistineau, which formed when water from overflowing bayous pooled amid timber and debris. A so-called "raft lake," Lake Bistineau was "not navigable on the date of Statehood," according to an amended complaint filed last March

Even if the lake were navigable and Louisiana owned the water bottom, the federal government contends that it retains mineral rights for certain tracts adjacent to the lake as well as rights to the water bottom touching those tracts.

Louisiana is attempting to prove that Lake Bistineau was always considered navigable, thereby giving the state control of all underwater mineral rights.

Among other evidence, the state plans to submit a series of letters dating to the mid-1800s that document discussions between the federal government and Louisiana officials about the status of Lake Bistineau. Although Hessick declined to describe the content of the letters, he said some of the documents prove that steamboats once plied the lake's waters while traveling the Red River from New Orleans to Mindon in Webster Parish.

"We think it's very strong evidence," Hessick said.

Although the State Mineral Board hopes to encourage leasing of Lake Bistineau with the proposal for an escrow account, it is doubtful that the deal would immediately spur the sort of frenzied bidding that occurred this summer for land in the Haynesville Shale.

Leasing fell off dramatically after the windfall August auction, largely due to the national economic downturn and plummeting natural gas prices. A combined mineral board auction for September and October generated $43.5 million, while a November auction earned just $3.5 million.

With credit markets tight after the historic collapse of the nation's financial system, energy companies are using available cash to drill Haynesville Shale property they already have on the books. Leases typically expire after three years.

"If I lease more land than I can drill on, then in three years from now I'm going to lose all those leases," said Don Briggs, president of the Louisiana Oil and Gas Association, explaining why energy companies would be reluctant to lease additional land.

Multiple companies have reported hefty returns from wells already running in the Haynesville Shale.

Petrohawk Energy, a Houston company that controls about 300,000 acres in the shale, reported that some of its wells are pumping about 15 million cubic feet of natural gas equivalent each day. That compares with shale wells Petrohawk operates in Arkansas that produce about 3 million cubic feet of natural gas equivalent per day.

But even the promise of staggering gas production may not be enough incentive for energy companies to risk venturing into the precarious Lake Bistineau territory, according to Briggs.

"The last thing they're going to do is get involved in any leasing that could be disputed," Briggs said. "They've already got enough headaches."

Jen DeGregorio can be reached at 504.826.3495 or jdegregorio@timespicayune.com.