Can Oil and Gas Survive at This New Normal?

As our country continues to see signs of a return to the “new normal” for local small businesses, the oil and gas industry continues to struggle to find balance in the new normal.

In a report from Baker Huges on June 8, the U.S. rig count is down 17 rigs from the previous week to 284, with oil rigs down 16 to 206, gas rigs down one at 76, and miscellaneous rigs flat at two. Year on year, the U.S. count is down 691 rigs from last year’s 975, with oil rigs down 583, gas rigs down 110, and miscellaneous rigs up two to two. The U.S. Offshore rig count is up one at 13 and down 10 year-over-year, according to Baker Hughes.

Louisiana dropped one rig last week, while neighboring Texas dropped 12.

The average U.S. rig count for May was 348, down 218 from April, and down 638 from the 986 in May 2019.

So, what’s to blame?

It’s hard to say.

The country faced two big slams, with OPEC+ deals and COVID-19 striking the nation at the same time.

In a new report out by Fitch Ratings, the coronavirus pandemic and the resulting oil price crash are set to wipe out as much as $1.8 trillion from the revenues of oil and gas exploration and production companies this year.

“The critical and expensive nature of oil and gas extraction (in terms of revenue, opex and capex) means that this sector dominates our lost-revenue projections, accounting for USD1.8 trillion of lost revenue globally in 2020. This is six times greater than the impact on the more visibly affected retail sector,” Fitch Ratings noted.

“The oil and gas sector accounts for the most revenue destruction in dollar terms, representing 40 percent of the aggregate revenue fall,” according to Fitch Ratings.

“While the oil price has recovered from historic lows, pricing is still well inside our price-deck estimates and we expect economic sentiment to remain subdued after the initial post-lockdown euphoria dissipates,’’ the agency added.

According to a June report by Bloomberg, oil is heading for its first weekly loss since the big crash back in late April. Fears of a second wave of COVID-19 in the U.S. threaten to derail an already fragile recovery, as swelling stockpiles raise concerns about excess supply.

Despite a pledge by OPEC+ to extend its output cuts, U.S. inventories have climbed to a record high, as the Federal Reserve warns of long-last damage to the economy caused by COVID-19. Prices are currently headed back below $36 a barrel.

At press time on June 12, West Texas Intermediate for July delivery lost 84 cents, or 2.3 percent, to $35.50 a barrel on the New York Mercantile Exchange on Friday morning, after falling 8.2 percent Thursday.

On a more local level in Terrebonne and Lafourche parishes, offshore companies have continued to file for bankruptcy and make massive layoffs.

In a June report from the Advocate, Houma-based Blake International Rigs LLC began to lay off 105 workers, citing economic downturn in the oil and gas industry in Louisiana, especially offshore from the Gulf Coast.

In their Worker Adjustment and Retraining Notification letter filed with the Louisiana Workforce Commission in late May, CEO Beau Blake stated: “Due to the drastic and unexpected downturn in the oil and gas industry, as well as the COVID-19 pandemic, Blake has determined that there is an excess number of employees within its organization.”

This layoff joins a long list of oil and gas companies that have had their hand forced. Halliburton laid off 36 workers following the closing of their facility in Broussard in April. 350 workers were laid off in three pipe fabrication facilities in Port Allen run by Turner Industries, based in Baton Rouge. ASRC Energy Services Omega in New Iberia reported they were closing that facility and laying off 180 workers starting in early June. Ensco Offshore Co., which now operates as Valaris, is reportedly laying off an undisclosed number of workers at its Broussard office. BP announced in early June that it will slash its global workforce by 10,000 jobs. •