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January 27, 2016
While it might be a hard sell to anyone who has lost a job lately, Terrebonne Parish officials remain confident that the local economic downturn related to global crashes in the price of oil is temporary and survivable for the community as a whole.
A series of international developments, some for the better and many not, are what have forced oil prices down and may ease them upward. A boom in exploration and production by U.S. – based companies fed the oil supply, and while demand has not significantly slackened, increased product worldwide has made the fossil fuel a less attractive investment.
Record profits by oil companies at this point have fallen by half. The oil companies have in turn downsized operations, resulting in dropped contracts for services by other companies, and in turn for companies that service them.
The pain trickles down, in the form of pink slips to employees for whom the joy of paying $20 for a tank of gasoline is significantly dampened, considering the difficulty of putting together the cash on reduced incomes.
Nonetheless, predictions of respected experts forecast an upswing, perhaps within the next year.
“The oilfield is a rollercoaster, the key is how quick will it bounce back,” said Terrebonne Parish President Gordon Dove, who is clearly cognizant of the problems low oil prices are making for local industry, but is not about to panic.
“The local industry is already starting to diversify, shipyards are looking for non-oilfield related work. We still have about 40 rigs out there drilling in deep water,” he said. “We have a lot of coastal restoration projects coming in and that is government work.”
The question “how long” will be answered by OPEC.
“OPEC has to come in and stabilize the oil prices. They can’t take a beating forever,” Dove said. “We hear it could get back to $50 per barrel before the end of this year. Maybe that will happen and it will climb after that. It’s anybody’s guess.”
Diversity, Dove maintains, is Terrebonne’s key to survival.
Baton Rouge economist Loren Scott says the rollercoaster nature of the oil market has stripped confidence from the industry, and businesses and individuals associated with it. His assessments indicate that fear has worked itself into investment markets. That fear, combined with uncertainty, compounds the tangible market assessments, and by extension, the decisions that business owners make at ground level.
“The only thing that’s happened in the last month is that the price has taken another dip. This is like the third dip now that we’ve been through. What I mean by dip is we had the initial first decline in oil prices, in which the price got around to $35 or so,” Scott explained. “Then, you may recall, it went up to about $60 almost, then it went down again. Then it went back up a little bit to the high 30s, and now we’ve got the third
dip down, this thing where we’re getting under $30 a barrel.”
That, Scott said, has been “extremely hard on the psyche.”
“Now you have more than one analyst group saying the price may go down to $20, you have the sanctions being taken off of Iran about the same time, and then the stock market is starting to tank. All this taken together is just, seems to me, sending the market into another funk.”
Complicating the situation is the collateral oil companies have used to obtain their loans – in this case the value of their petroleum reserves. A two-thirds drop in the value means a two-thirds drop in equity, making new loans more difficult to obtain, or requiring companies to pony up more collateral.
The lenders, Scott said, are scared.
“Their lenders don’t know where this oil price is going to land, so they’re reluctant to lend, too,” he said.
Projects, Scott acknowledged, have been canceled in the Gulf of Mexico.
The problem there is, in part, the potential that the $130 million needed to drill a well might not pay off. The potential for success may be guaranteed in North Dakota, and for less of an investment.
“Right now… the decision is to leave the Gulf and go into the shale plays. That’s what’s tough on the Houma and the Lafayette area. That’s why your employment numbers are negative now,” Scott said.
The potential of more oil flooding the market now that economic sanctions have been lifted from Iran, Scott maintains, has already figured into projections. Except, in Scott’s estimation, Iran’s need for rebuilding an infrastructure that has been idle, along with other complications, will likely forestall any immediate impact.
“They might be able to put 300,000 more barrels in the next year,” Scott said. “They’re not going to put 1.3 million. This is going to be harder than it appears on the surface.”
Iran’s need to replace rusting pipelines and get refineries running at full tilt again could mean some work for U.S. companies in the future, although Scott said it is likely that Iran will have requirements for protecting the jobs of their own people.
Locally, the adjustments that will occur during the as yet unstemmed turndown can contribute to future success and prosperity as long-standing companies not indebted to the banks acquire the assets of companies that were not as strong to begin with. As that activity continues, the stage is set for a rebound once Saudi Arabia, which has been flooding the world with its oil, decides to turn back the spigots.
The oil price crash, Scott notes, affects them too, along with other big oil producers. So it will be only so long before they say “uncle,” and stop going through their cash reserves to fund their government.
“They’re just like everybody else: low oil price is not great for anybody in terms of increasing output,” he said. “It’s the opposite. I think the more information comes out on the ability of Iran to actually increase their output, we may see the response of the market may be to let the price go up some.”
One of the people keeping a close eye on developments at home and abroad with hopes of adding to the pool of potential economic boosters is Pat Gordon, director of the Terrebonne Economic Development Authority.
Like Dove, he remembers the oil bust.
“Our unemployment rate is 6 percent,” Gordon said. “In the mid-1980s, it was 26 percent in Terrebonne Parish. The more diversification we have, the greater the sustainability you have for future growth.”
He agrees with Scott that the key to an upturn lies with the Middle East, Saudi Arabia and the other oil-rich nations there, but also increased pressure the low prices will put on oil producers elsewhere on the globe.
“It’s all based on OPEC at this point,” he said. “I don’t know when they will stabilize the market. We know they will some time in the future. Countries like Venezuela are having tough economic times, and $26 per barrel is not going to cut it for them. Smaller countries are putting pressure on Saudi Arabia, including Oman. They want to stabilize the market as well. The sooner this happens the sooner our recovery will take place.”
The downturn, meanwhile, is creating other opportunities for Terrebonne, Gordon said.
“We have a large inventory of skilled workers and we are seeking out other companies to see if they can relocate in Terrebonne Parish,” he said, noting that in the River Parishes collaboration between government and industries other than oil has resulted in a continued employment boom.
“We have welders, pipe fitters, and some of the industry in Terrebonne is already diversified. They are doing work other than oil and gas-related fabrication,” Gordon said. “There are shipbuilders and they can build vessels for the Coast Guard and law enforcement. Fabrication yards are building wind turbines.”
Lake Charles is building huge natural gas export facilities, Gordon said, and he and other Terrebonne officials are planning visits there to bring some of that fabrication work here.
Another factor that could aid the restoration of Terrebonne’s economy to a brighter place is the recent elimination of the oil export embargo, allowing U.S. companies to sell their currently bloated stockpiles of black gold overseas.
Terrebonne’s position as a growing retail center is something that should also not be overlooked, Gordon said.
“We are a retail mecca for the region,” Gordon said. “Those individuals working on the river, where things are prospering right now, they are not driving to New Orleans, they are not driving to Baton Rouge to shop.”
The importance of oil and gas, however, is something that cannot be overlooked when it comes to individual prosperity, Gordon said.
“People losing jobs who have been laid off are finding new jobs,” he said. “There are jobs that don’t pay nearly the amount they were making with oil and gas.”
Local officials note that there is something Bayou Region residents can do to help bolster the local economy and save jobs, which is to support local businesses.
“We’ve got to circulate the dollars within Terrebonne Parish,” Dove said. “As Terrebonne Parish president, one of my main objectives is to let everyone local know that I am doing what I can to give business to companies within my parish. The prices have to be in line and the level of service and quality of work has to be there. But I am telling all my department heads the same thing.”
‘Right now … the decision is to leave the Gulf and go into the shale plays. That’s what’s tough on the Houma and the Lafayette area.’
Baton Rouge Economist Loren Scott
‘We are a retail mecca for the region. Those individuals working on the river, where things are prospering right now, they are not driving to New Orleans, they are not driving to Baton Rouge to shop.’
Terrebonne Economic Development Authority Director Pat Gordon
‘OPEC has to come in and stabilize the oil prices. They can’t take a beating forever.’
Terrebonne Parish President Gordon Dove
Jason Braud of Gray pumps gas for $1.59 per gallon at the Convenience King store on Prospect Boulevard in Houma. Recently laid off from National Oilwell Varco, he says he would rather have a job and pay more for fuel.
Baton Rouge Economist Loren Scott
Terrebonne Economic Development Authority Director Pat Gordon
