Oil’s well that hires well

One might say business is so good for the oil and gas industry right now that it is too good for the industry’s own good.

Workforce issues plague the nation across many sectors, but the lack of skilled and qualified workers is keenly felt in the oil and gas industry, which is booming and is desperate for new blood.

And political turmoil around the world, developments in deep drilling technology and the discovery of vast new oil reserves in the deep waters of the Gulf of Mexico are working to drive United States oil and gas companies out of foreign countries and back to the domestic, “politically safe” waters of the Gulf.

In many ways the industry is a victim of its own success, but it’s making too much money to care. Expensive exploration is now affordable and unskilled workers are now worth the money it takes to train them.

But, the pinch on the labor force has begun to draw attention to the problem of drug use in Louisiana, as well as the rest of the nation.

Perspective employees are failing drug tests in frustratingly significant numbers for the industry.

Drilling for a workforce

Professor Emeritus in Economics at LSU Loren Scott said when he worked on the Louisiana Economic Outlook 2004 report, he warned of a tightening labor market in 2006 that would gradually worsen.

“We told people, ‘Get ready,'” he said.

Scott explained the reason for the shortage started in about 2006 when the number of people turning 19 years of age and entering the workforce for the first time would start to drop off dramatically.

At the same time, he said, the front edge of the baby boomers would be turning 60 and thinking of retiring.

“You’ve got a very serious labor market shortage and not just in oil and gas, but across the board in the state,” said Scott. “And Katrina and Rita have just made it worse, especially on the construction side.”

Louisiana Oil and Gas Association president Don Briggs offered another, more localized explanation for the tightening workforce in Louisiana.

He said the United States was attempting to end the Cold War back in 1985 and asked Saudi Arabia to flood the world market with oil to crash the Soviet Union’s economy and thus end the war.

But because of that crash, he said we lost an entire generation of people entering the industry.

“A lot of women of child bearing age at that time got in a car that was hooked up to a U-Haul trailer and they got the heck out of Dodge,” said Scott. “And we lost all those births. And we’re now starting to pay the price for that.”

The Terrebonne Economic Development Authority CEO Mike Ferdinand added there was also a move away from skilled labor toward university education.

“Another issue is there were trends to move away from skill trades,” said Ferdinand.

He also said the unemployment rate is very low and approaching what many economists consider to be “full employment.”

“In economic development, when you start hitting numbers below 3 percent, when you get down around 2.7, 2.9, there is a percentage of the population that disqualify themselves from labor or can’t work,” said Ferdinand.

He said Terrebonne was at 2.9 percent in July. And when or if the parish reaches 2 percent, he said the workforce will get really lean.

“We just have a huge (worker) shortfall in the entire industry,” said Briggs. “What can you do? We pay some of the highest jobs. We have training facilities and our industry is constantly recruiting people to work.”

Fortunately, according to Briggs, he said the worker shortfall hasn’t impacted production.

“I cannot say with any clarity that I’ve heard of or seen a situation where we are not drilling wells and not producing wells, because we don’t have the workforce to do it,” said Briggs.

Briggs said the industry’s worker shortfall, however, contributes to time delays on projects, if anything, currently.

“Delays in getting projects done, because you can’t get the people to do them,” said Briggs.

And as the barrel, workforce, runs dry, companies are starting to realize they’re getting a lot less of the cream, quality workers, they would normally find at the top.

“It’s a problem because of the quality of workers, you’re getting the cost of it,” said Briggs.

The industry has been forced to pay lower quality workers more money and benefits, and this costs the industry.

Scott said companies are accepting people they normally wouldn’t and they are taking on the expense of finding people in foreign countries to come to work for them.

And the wage rates have gone way up, Scott noted.

He said the average weekly earnings in the mining sector, which is almost exclusively oil and gas extraction, was $869 in December of 2001.

In July of this year, the weekly average was $1,417.

“That’s probably the best indicator around that we got a shortage problem,” said Scott. “It is a big mother increase. ‘Big mother increase’ is a technical economics term.”

Briggs explained how the wage rates, benefit increase and other tactics companies have used to lure workers into their employment, affect the industry.

“Nobody cares about profits in the industry when oil is at what it is. So, you don’t talk about that kind of stuff,” he said. “You think anybody on the street gives a damn when the oil companies are making the profits they’re making now. But your little welding shops down there south of your town (Houma) and all those little services companies that provide that infrastructure, that’s an issue for them. And it’s costly. It’s workman’s comp issues. There, it is an impact.”

Briggs explained the larger, publicly-owned companies tend to have higher hiring standards than the smaller, privately-owned companies.

And the smaller companies take the risk on hiring less than qualified employees, sometimes. They need bodies to go out on the job.

But the workforce situation will likely worsen.

“That demand is going to get so much greater in the future,” said Briggs. “You’re going to have more and more demand for good oil field workers and it’s going to be difficult to come by.”

High-paying jobs that can’t put a roof over your head

“Housing is definitely a problem,” said Briggs.

Briggs said he has heard of companies providing on-site housing and believes it to be a reaction to the housing shortage.

“Some firms would like to open, but they can’t because their employees wouldn’t have a place to live,” said Scott. “And they can’t open because there is nobody living there to sell to.”

Scott said some companies are building multi-family units to accommodate the workers they are hiring from out of state and out of country.

“You look at some of the things the shipbuilders are doing. They’re building barracks. They’re building their own multi-family apartment units for these people to live. They’re having to do all kinds of houses,” said Scott. “Avondale Shipyards started up a daycare center so they can start mining the female population more. They’re having to come up with some really creative stuff to solve this problem.”

TEDA CEO Ferdinand said south Louisiana will see greater competition for its labor pool and as such, some companies will begin looking at other amenities to attract good quality people.

“But that’s a trend that’s actually happening nationally. It’s not limited to Terrebonne Parish,” said Ferdinand.

Scott blames several factors for contributing to the housing shortage, storm damage, high utility and insurance rates and an increase in property tax in New Orleans.

He also said the Road Home money has been slow.

“Some people are saying, ‘I’m not going to rebuild,'” said Scott.

Cost analysis: Tyranny v. Hurricanes

“That’s (storms) the biggest and most costly (problem),” said Briggs. “It’s very costly. It’s costly to the nation when we have to start shutting those (rigs in the Gulf).”

Briggs said the Gulf is back to almost full production capacity to what it was before Katrina and Rita.

But this comes with a caveat. Some of the platforms did not come back online. They were instead replaced with new ones.

These older platforms were near the end of their lives, so to speak. Oil reserves deplete. And some of these rigs did not have enough oil left to mine to justify repairing them.

While hurricanes pose a continuous and expensive threat for the oil and gas industry in the Gulf, the increase in oil prices has complicated the geopolitics.

Scott said political safety is the most important thing for oil companies right now.

And the Gulf, offering reserves in domestic waters, promises political safety.

“The Deep Water Gulf of Mexico is now becoming one of the biggest areas for our companies to drill and explore. The reason why is because it’s politically safe,” said Briggs.

He explained oil and gas companies are being driven out of foreign fields around the world, because operating in them is no longer safe.

“Venezuela just took over all the fields our companies had down there,” said Briggs. “Russia just changed the contracts that they had.”

The economics professor Scott shared Briggs’ sentiment.

“Suppose you have two options. ‘Option A’ is to go into the Gulf of Mexico. ‘Option B’ is to go… Well, some people chose the option of going to Venezuela and drilling in the Orinoco Oil Belt. And guess what happened? Chavez took it totally over and they lost it completely. All of their investment, plus they had taxes assessed on previous drilling that had taken place,” said Scott. “So, you got rooked all the way around if you decided ‘plan B.'”

Briggs said we have problems all over the world and politics are forcing companies back into the Gulf of Mexico and especially its deepwater fields.

And Scott said companies are weighing the possibility of striking a very expensive, dry hole in the Gulf with the political instability around the world.

“You can kind of see why the oil and gas industry would start trying to do two things. One, drill more in the Gulf of Mexico. And two, try to get the federal government to take the moratoriums off the east and west coast of Florida.”

The LSU economics professor Scott said the United States is the only country in the world that has these kinds of restrictions on offshore drilling.

The LOGA president Briggs was inclined to agree.

“We’re the only country in the world that does not allow their industry to develop their resources. We’re the only one,” said Briggs.

“It’s just a remarkably stupid policy,” said Scott.

And as far as the claims about offshore drilling drastically impacting the environment, Briggs strongly disagreed.

“My god, I could drill in your bathtub and you wouldn’t even know I’m in there hardly,” said Briggs. “We catch the rain water off our rigs now and pump it back into the ground.”

Scott made an interesting point in regards to hurricanes Katrina and Rita. He said despite those two storms coming through the Gulf in 2005, there was virtually no spillage offshore.

In fact, he said virtually all the spills were onshore in tank farms.

“People in the east coast need to look at that and then they need to realize there are far more oil spills from tankers bringing stuff in from Qatar and Saudi Arabia and places like that than are ever spilled from actual offshore oil and gas extraction activities,” said Scott.

And if the moratorium is lifted from the Gulf, what about the Arctic National Wildlife Reserve?

Scott explained the advantage of drilling in ANWR is there are virtually no people living out there and only a few thousand very rich people get to see it a year.

He described it as a “vast wasteland of nothing” and not just the pretty pictures shown on TV and in magazines.

“There are actually people out there who believe that if an elk sees an oil platform it won’t have sex,” said Scott. “There are people who believe if a polar bear sees a road, it won’t cross the road to have sex.”

The Jack Field in the box

The Minerals Management Service will be holding a lease sale for waters in the Gulf of Mexico in early October.

“A lease sale is a kind of indicator of what’s likely to happen in the future. So, if it’s a really good lease sale, then of course that’s really good news,” said Scott.

How well the lease sale goes will be a major indicator as to the future of drilling in the Gulf and its economic boon for south Louisiana.

“There’s no question, probably next week (early October), you’re going to see one of the biggest lease sales we’ve had in a long time. And there’s going to be a great deal of money spent in the Gulf of Mexico deep water,” said Briggs. “It’s going to be big.”

Contributing to the excitement about the sale is the discovery of the Jack Field in the deepwater Gulf.

“This is a huge find. A lot of people are very excited about it,” said Scott.

The field is 270 miles southwest of New Orleans in the Gulf.

Some experts have speculated the Jack Field could contain as much oil or more than Prudhoe Bay off Alaska.

Scott said the upper end of some estimates say the Jack Field could increase U.S. oil reserves by as much as 50 percent.

He said south Louisiana, especially Houma-Terrebonne and Port Fourchon, are going to be the big benefactors of the renewed interest in the Gulf.

“Where there is greater opportunity, there is greater opportunity for growth,” said Ferdinand. “That’s often market driven and markets can be unpredictable.”

Ferdinand also said TEDA has been seeing a greater interest in inquiries on incentives that are available for expansion from companies in the industry.

“Houma and Lafayette are going to be two of the fastest growing areas in our state,” said Scott.

There remains a ban on drilling in the eastern Gulf, but Briggs said that will have to change, soon.

“That is going to have to be opened up in the near future,” he said. “Because world oil supply and demand is so strained and you’re watching oil prices climb to $82 a barrel and you never believed you would see it. But, you’re going to see $100 and $150 oil.”

Briggs said when oil prices reach these triple digit numbers, public pressure will be exerted to lift the ban on drilling in the eastern Gulf.

“In the next four or five years that’s going to happen. And what you’re going to see, Port Fourchon is going to be a major jump off point to service the eastern Gulf of Mexico,” he predicted.

Scott said he doesn’t see the near future of the oil and gas industry in south Louisiana as being a “boom.”

Instead, he believes there will be solid, strong growth in the industry.

“You’re just going to see it be very strong and very solid,” said Scott.

New drilling technology, developed in just the last couple of years, has allowed for the reserves in the deep waters to finally be tapped.

Platforms have to drill in water 7,000 feet deep and then go five miles deep into the ground.

It is worth noting these deepwater rigs are also more vulnerable to hurricanes.

The 800-pound, substance-abusing workforce in the room

Scott said the rough estimates he has heard from talking to ship building companies is they will have 100 apply for a job and 50 will fail the drug test.

“The problem you have is just finding enough people to pass drug tests,” said Briggs.

Scott said he keeps hearing about the issue over and over, no matter whom he talks to in the industry.

The TEDA CEO, Ferdinand, said he has heard that the difference between the number of drug tests companies issue compared to the number of employees actually hired is very high because a lot of new hires are not passing the drug tests.

“It’s a very big issue,” said Scott. “That just compounds the problem, as you can imagine. You have a shortage of numbers and the ones that you do have, you’re going to lose a large percentage of them due to the drug issue.”

South Louisiana Economic Council Executive Director Vic Lafont said the pre-screenings for drugs is where employees are mostly lost.

Others fail the random and periodic screenings imposed on them by their companies.

“If you pee in that bottle and it comes up, you’re done. You can’t even go on a boat,” said Lafont.

The industry, by its own nature, has to maintain high requirements for its employees for safety reasons, he noted.

“It’s more stringent, because of the safety factor,” said Lafont. “You can get hurt without drugs.”

“That’s one of many reasons why employers are having problems hiring and keeping people,” said Lafourche Parish District Attorney Cam Morvant. “Drugs are a major issue, not just in Lafourche, Terrebonne, but in the United States as a whole.”

The Terrebonne Parish Drug Court coordinator Danny Smith said a partnership with the South Central Industrial Association had been proposed in the past.

The companies in SCIA who have employees who fail the drug tests would have had the option of putting them through rehab.

But at the time, Smith said the companies did not think it was necessary to rehab them, when they could just fire them.

Smith said that now, companies like to hire participants in the Drug Court, because they are regularly screened for drugs and are required to go to work.

“They have no fears of hiring our people at all,” said Smith.

Smith said he has contacts with companies that have told him they would hire anyone from the program he sent them.

One of the ways SCIA is dealing with the substance abuse problem is through its Work It! Louisiana program.

“Part of our Work It! Louisiana program is to educate the students on the job availabilities and to equate them with the advantages of getting a technical education,” said SCIA Executive Director Jane Arnett. “And in developing this program part of the mindset was to assure that each student felt good about themselves.”

Arnett said people have been conditioned to say that if one does not go to college, then they are nothing.

“That’s why Work It! Louisiana partially has been developed, so we can make them feel good about themselves, to say you are something regardless of the career path you take,” she explained. “Subliminally, I believe that if a person feels good about themselves and what they’re doing and the choices they’ve made regarding careers, maybe they won’t tend to lean on drugs.”

The Louisiana Department of Labor wrote the issue of employees and potential employees failing drug tests is outside its purview.