In Natural Gas Bust, Boom Town Teaches Drillers a Lesson
NEW YORK ( TheStreet) -- Robert Glass has been through his share of oil and gas booms and busts, and the historic slide in natural gas pricing to near-$2 and a 10-year low, which has brought gas drilling to a halt in Louisiana, doesn't faze him.
Before becoming director of public works for Louisiana's Caddo Parish, which includes the city of Shreveport, Glass clocked 18 years in the oil and gas business. In fact, the former oil and gas executive became a municipal official just as the Haynesville shale gas boom was flooding Louisiana with cash.
|To manage the natural gas bust wisely, look to municipalities, not the oil and gas companies.|
"It's somewhat normal down here. It's always been that way with gas. No matter how good it gets, two or three years down the road, it will turn," Glass said.
In fact, Louisiana's familiarity with this harsh cycle goes back to 1910, when the Pine Island oil and gas field was discovered in Caddo Parish. "Pine Island was one of the biggest oil fields in Louisiana. Back during that time there were good-sized boom cities and now they are little bitty towns lucky if they have a few thousand people," Glass said.
Headline attraction to the energy boom is perennial. A headline from the New York Times three years ago about the Haynesville shale boom can today be replaced by tales of the North Dakota Bakken, where unemployment is a thing of the past, or stories about the Eagle Ford and Permian shale, where sports car dealerships spring up and real estate values rocket in formerly forgotten locales.
The press is less obsessed with the bust than the boom in the current narrative about the United States becoming the "new Middle East" thanks to the revolution in shale drilling technology. Yet the same Louisiana boom area that the New York Times profiled three years ago is weathering the natural gas bust rather well, even if Glass is no longer fielding calls from the national press.
In fact, Caddo Parish is proving to be an example of fiscal discipline that the E&P companies might be well advised to heed, led by the biggest driller in the Haynesville shale, Chesapeake Energy (CHK) .
Chesapeake Energy is the poster-child for the shale land grab and the excessive leverage racked up by the company has made it a market laggard. Cash flow is a major concern and the company this year said it will sell as much as $10 billion to$12 billion in assets to cover its expenses. Caddo Parish, on the other hand, doesn't have to sell a thing, including any of its remaining oil and gas acreage.
The aggressive mentality that led Chesapeake Energy to amass the second-largest collection of shale assets in the U.S. -- second only to Exxon Mobil (XOM) -- is on display once again, even as the boom has gone bust. Chesapeake has twice the level of debt of a company 27 times its size in Exxon Mobil.