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Pump Slump

Louisiana’s biggest industry gets tested, once again

How bad is the latest downturn in Louisiana’s oil and gas industry?

Consider this: A recent south Louisiana business luncheon for a few hundred guests opened with a request that the group pray for the industry’s unemployed.

It has been a few decades since the state has seen its biggest industry hit this hard. But then it has been a while since the price of the state’s most important commodity has reached such depths.

The price of oil, which the world for years had become accustomed to seeing somewhere around the $100 per barrel mark, has fallen nearly 70 percent since mid-2014.

“I don’t have to tell you how bad it is,” Don Briggs, president of the Louisiana Oil and Gas Association, told the guests who gathered for that luncheon at Lafayette’s Petroleum Club.
Briggs doesn’t have to explain the problem because the nation’s economists are taking care of that.

The number of nonfarm jobs in Louisiana fell by 21,200 for the year ending in February, the latest month for which data are available, according to the U.S. Bureau of Labor Statistics. That was a 1.1 percent drop for the period.

More than half of those job losses came in the oil and gas industry.

While Louisiana’s unemployment rate actually fell to 5.9 percent from 6.7 percent during that year, economists say the improvement may stem from increased numbers of unemployed people giving up on looking for work.

As is often the case with the state’s economy, Louisiana is running somewhat counter to the rest of the country. Nonfarm employment increased in 43 states and the District of Columbia during the 12 months ending in February, and average unemployment was 4.9 percent nationwide.

The bureau’s figures show that even Texas, whose economy also skews heavily toward the oil and gas industry, gained more than 170,000 jobs during the one-year period.

But that’s likely because Texas holds more of the large exploration and production companies that tend to be able to withstand a slowdown and forestall job layoffs for a longer period.

The portion of the industry that predominates in Louisiana is the service sector, which encompasses wide-ranging businesses that provide services or supplies to production companies. Historically, that sector feels the pain of a downturn well ahead of the rest of the industry.

New Orleans-based Tidewater Inc., the largest provider of service boats to the oil and gas industry worldwide, has many times in the past felt the squeeze of a price downturn, and true to form, the company has again taken a big hit.

Tidewater lost $20 million in its latest quarter as demand for its boats slid. The company’s loss for the full year could amount to 50 cents per share.

And that loss may pale in comparison with expectations for the next fiscal year. Stock analysts have said Tidewater could lose more than $3 a share in the coming 12 months.

The publicly traded company said recently that it’s negotiating with its lenders in hopes of avoiding a default on its debt.

Among many other local-area companies that are hurting is Morgan City boat builder Conrad Industries, which recently reported earnings that were less than half the company’s profit in the previous year.

Part of the reason for the prolonged downturn in oil prices is slackening demand by previously big consumers of oil that have experienced slowdowns in their own economies.

But another source of the problem is political. Saudi Arabia, which is the heavyweight player in the world’s OPEC oil cartel and often controls oil prices by opening or closing the spigots of its own vast reserves, has dug in and refused to reduce output, thereby continuing to flood the world market with cheap oil.

Saudi Arabia is reacting to a big increase in oil output from the United States that occurred as this country began extracting massive volumes from onshore shale formations in several states. The Saudis have, in essence, refused to allow the United States to profit on these new finds at the expense of foreign producers.

This game of chicken is what has led some of the world’s largest oil companies, including Shell, BP and others, to announce plans for thousands of job layoffs around the globe.

The only source of light at the end of the tunnel is the fact that even the Saudis cannot forever withstand the impact on their economy of exceedingly low prices. In the end, everybody may have to give a little, including the United States.

At some point, the price of oil will rise to a level that’s healthier for the industry. But when that happens, the domestic industry likely won’t expand quickly back to its former capacity.

The oil industry is more keenly aware than ever of its vulnerability to global factors that affect prices. And the many oil field service companies in Louisiana know that the only thing they can do as countries on the other side of the globe contemplate their next move is wait.

 

Vanishing jobs
Some industry analysts believe that oil prices may begin to rise from the mid-$30s per barrel later this year.

Meanwhile, about 40,700 people worked in the Louisiana’s oil and gas sector as of Feb. 29, 2016.

Some 11,700 jobs in the sector were cut within the previous 12 months.

Most of the jobs – both those lost and those remaining – are in companies that provide services or supplies to the firms that search for or produce oil and gas.

Source: U.S. Bureau of Labor Statistics

 

 

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