For the oil and gas industry, bad news has come in bunches of late.
Stone Energy announced last week it would almost halve its operating budget in 2015, from $875 million to $450 million. That followed by a day an announcement by Baker Hughes that it would lay off 7,000 workers.
Sound familiar? It should, because that announcement came five days after Schlumberger’s announcement that it would lay off 9,000 workers, news that followed by a day Halliburton’s announcement of 1,000 layoffs in the Eastern Hemisphere. The company said more layoffs may occur, and that some have occurred in Lafayette. All of those companies have a strong presence in Acadiana.
The bad news comes in the wake of a gradual decline — six months of heading south — in oil prices since last June. The price of a barrel of oil has dropped from more than $100 last June to less than $50 Monday, a level where it has languished for weeks.
So what’s next? Afraid to ask? Well, you don’t need a weatherman to know which way that wind blows. We’ve got numbers instead.
Price plunge aside, oil people look to next opportunity
Gregg Gothreaux of Lafayette Economic Development Authority said indicators include drilling permits, unemployment insurance claims, stock prices for local companies and retail sales. All of them point out our direction, and not all of them are necessarily good.
Louisiana’s weekly initial unemployment claims in mining — that’s where oil and gas jobs reside — have climbed incrementally, week by week, over the last month, from 27 to 40 to 121 to 166. Those numbers aren’t statistically significant, but it sure would be calming if they traveled in the other direction this week.
Rig counts are down nationally, but appear to be holding steady in Louisiana.
“Decisions about rigs are made in response to economic conditions, government policies and other variables such as prices,” Gothreaux said. “In a business where one rig could signify thousands of jobs and tens, if not hundreds, of millions of dollars in capital investment, rig counts are a great indicator to follow.”
The early take from experts is that Lafayette may not suffer as badly as the rest of the oil and gas states. Don Briggs, president of the Louisiana Oil & Gas Association, has said since Thanksgiving — that was when OPEC declared it would continue producing oil at the same rate, knowingly flooding the oil market — that American shale plays were most at risk from plummeting prices. Shale plays demand a higher break-even point and companies invested in shale plays in Texas, Colorado, North Dakota and Ohio are backing off their previous aggressive drilling.
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Economist Loren Scott of Baton Rouge said Gulf of Mexico projects that are under way are less at risk. Those, he said, come with 10-year plans and long-term budgets, and lower break-even marks. Veteran oil people in Louisiana, he said, may be in better positions to ride out the storm of low prices that is drifting over oil and gas. Those who weathered worse storms in the 1980s and 1990s, he said, have largely trimmed down their companies to fighting weight.
We hope that is the case. Consumers are enjoying a respite from high oil and gas prices, and, some knowledgeable onlookers believe, will use the extra $50 to $80 they find in their pockets every month to pump up other areas of the local and national economy — maybe even travel some. Good for them. The dollar is strong — good for us.
But oil and gas is important to the local, state and national economy. Oil’s downturn imperils the state budget, which relies heavily on a robust oil economy. Oil is vitally important to U.S. national defense. And, numbers aside, every job lost means a worker and a family have been adversely affected.
Most of us are enjoying the extra jingle in our pockets, the benefit of low prices. But there are down sides to this downturn in oil and gas prices. Let’s watch closely and measure the impact to our local economy in the months to come.