Finally…Some Light at The End of The Tunnel

The local oil and gas industry has been gutted over the past several years as oil prices bottomed out, which slashed revenues, which slashed workforce and then ultimately also the local economy – the full trickledown effect.

But after months and even years of struggle, it appears that there may ultimately be a bright rainbow at the end of this monstrous economic thunderstorm.

Local officials stress that the oil and gas industry is not healed, but add quickly that there are signs that a recovery is either underway or imminent.

Throughout December, oil prices pushed upward in the high $50s/barrel and in 2018, they broke through $60/barrel and got near $65/barrel during the date of this publication.

Those numbers may seem modest compared to the $110/barrel mark that was set several years ago when the economy was sizzling at its highest point.

But keep in mind that just two years ago in Jan. 2016, the market was so glutted with crude that prices struggled to reach $30/barrel – the peak of the economic struggles which have dominated the local business world since then.

“It’s been a tough time on everyone and tenants and the industry are all in flux – hanging on day by day as best they can,” Port Fourchon Executive Director Chett Chiasson said. “Fortunately or unfortunately, though, we’ve all seen these types of things from the past. There are ups and there are downs. This down period has lasted longer than we all would have wanted it to. But I think there’s a really good sense that there’s a swing back in the other direction coming. We know the people are resilient. We know the industry is resilient. We’re just ready to get things back to normal again and we’re confident that’s going to take place.”

Chiasson said current oil prices are right around the sweet spot that companies need to make significant profits in deepwater drilling.

The executive director said the $65-$70/barrel range are sort of the benchmark that major companies set to justify the costs associated with deepwater drilling – the point where the work can be done with significant profit.

“We’d all take $90, $100 or $110 per barrel, obviously,” Chiasson said with a laugh. “But we just need a boost. I think everyone can manage $65 to $70 a barrel. I think if we can get back to that point consistently, the majority of the work would come back.”

When prices sink below that, the cost to extract oil from the surface of the Gulf of Mexico isn’t worth the price to sell it, which causes rigs to sit empty and workers to not be needed.

That, then, of course, trickles down to supply companies, general laborers and every other oil-related industry.

Ultimately, as people make less money, sales taxes get affected, too, which hurt businesses, schools and just about every other reach of the community.

LSU professor and well-known economist Loren Scott said the industry is the “head of the snake” in the Houma-Thibodaux area.

“It’s everything to you people,” Scott said during a recent speaking engagement in the area. “If I own a restaurant, my restaurant hurts when oil suffers because my tables are empty. That hurts my grocer that I buy my supplies from. That hurts the employees of the grocer. To you guys, the oil and gas industry isn’t a part of your economy. It is your economy. It touches and affects everyone – directly or indirectly.”

Those impacts, ultimately, extend to Washington DC, too, where folks in the industry stress that help has been sent – just as prices have been on the rise.

Chiasson said since President Donald Trump has taken office in Jan. 2017, he’s been working to disband regulations that were put in place by President Barack Obama that made it inefficient or too costly for drilling to be done – mostly after the BP Oil Spill in 2010.

Some of those regulation rollbacks are in place and are affecting the industry now.

Others are being discussed and are expected to be put in place sometime during President Trump’s first term.

Chiasson said he and other industry leaders want the same thing – for the oil and gas industry to be safe, but for rules to also be fair to the businesses involved.

Chiasson said President Trump’s administration’s willingness to do that has been a driving force in keeping companies around – even when prices were very low and there appeared little hope in sight.

“The less restrictive you can make it while still being safe and good to the environment, the cheaper it makes the cost per barrel,” Chiasson said. “So that’s been what’s keeping people around in my opinion. There’s willingness of this administration to limit the regulatory process so that it’s more efficient so that allows for a cheaper way to provide the safety features that are necessary.”

FORECAST FOR THE FUTURE

Even with the optimism, don’t expect oil prices to go surging quickly back to $100/barrel levels.

In late December, the U.S. Energy Information Administration issued its short-term energy outlook for 2018.

In it, they predict that the price of oil could be anywhere from $48/barrel to $68/barrel by March.

The report does say that they’ve created a more positive outlook for the industry’s future than their earlier reports, citing OPEC’s decision to reduce output, which put a floor under prices.

OPEC members reached that deal in Nov. 2016 and they agreed to cut production by more than a million barrels by Jan. 2017 as part of the deal.

Ever since that agreement, prices have gradually nudged upward.

That deal has since been renewed for the future, which has created raised optimism, according to the U.S. Energy Information Administration report.

The report does stress that any oil-related forecasts are highly volatile and can change at any time based on natural disasters or political relations between nations.

For anyone looking far into the future, the picture appears rosy.

The report says that by 2025, the price of oil will rise to $86/barrel (on average) and by 2050, that price will jump to $117/barrel (on average) as the United States continues its push for exploration.

“Even with its dips and turns, the industry will not go anywhere for a long time,” it reads. •