Drop in Oil Prices - Cause for Concern in Local Louisiana Markets?

by | Friday, December 12, 2014 |

While many Americans are thrilled about the plunging oil prices, there is some concern amongst locals about the oil patch economy.

Since this summer, the price of one barrel of oil has dropped over 25 percent, sending the national average for a gallon of gas under three dollars for the first time since 2010, and saving Americans roughly $250 million per day, according to AAA.

However, this price drop might adversely affect some sectors of the Houma-Thibodaux area that are closely tied to the oil and gas industry.

In November, Houston-based Hercules Offshore announced layoffs of up to 400 workers, giving the first hint of concern about the price drop effects. The cuts are distributed across Texas and Louisiana, affecting employees at Port Fourchon, Grand Isle and Larose.

Economic development officials for Terrebonne Parish stated that this is the only substantial layoff that they’ve heard of since the recent downturn. Local companies have said they are approaching 2015 cautiously since the 2014 holiday season has been slower than in previous years.

Said Eric Danos, Executive Vice President of Danos, based in Larose, “We haven’t really seen any project cancellations or things get postponed. We are starting to see some more sensitivity on cost from the customers . . . We have a had tremendous growth over the past three to five years, and what we are talking about internally is a slower pace of growth.”

Joseph Orgeron, Chief Technology Officer for Montco, Inc. of Galliano, expressed, “The three H’s — hurricanes, hunting, and holidays — those things always seem to get the purse strings of the oil and gas companies clutched a little tighter.”

Orgeron also said that some customers are considering postponing projects for early next year to “tighten the belt.”

Experts, however, relay that there is more to the slowing of activity than the drop in oil prices. Cinnamon Odell, HIS-Petrodata Rigs Analyst, expressed that drillers started to cut back well before the price of oil plunged, due to increasing costs related to offshore activity. Odell also said that the drop in prices will cause more of an immediate effect on onshore drilling.

According to Odell, “It started happening earlier this year strictly due to cost ... Not just for the rig itself but other related things like offshore service vessels. All those things have been on the rise. Operators are saying ‘wow, what we projected a few years ago has sky rocketed.’ That means putting things on the backburner.”

LSU economist and Director of the Center for Energy Studies at the university, David Dismukes, feels that “[i]t could go down further, but I do not think that is likely.”

Dismukes went on to say that decreased economic activity – particularly in and around Asia – has put downward pressure on oil prices, and that a strong dollar increases that pressure.

Said Dismukes, “I can see us bouncing around $75 and $85 (per-barrel) for the next year... As long as we are not going below about $75 a barrel you will see some action at the margins but not people moving toward the exit doors.”

In 2016, production in the Deepwater Gulf of Mexico is projected to reach a new peak of 1.9 million barrels of oil per day, marking the first time production will surpass the previous peak set in 2009. That increase is predicted to be driven by big discoveries like the Hess Corp’s Tubular Bells field in Houma, which began production this week.

Kirk Meche, Gulf Island CEO, stated that the prospects for the Houma yard are good, though oil prices will have an effect on business.

Meche conveyed, “I think the market is still strong for the Houma facilities for the next several quarters. ... We need to figure out what is beyond that. I can’t tell you what the market is going to be. I can tell you we recognize the challenges of the marketplace and we are diversifying to meet the needs of not only oil and gas, but different industries.”

This entry was posted in no categories.