If you’re wondering where the slide in the price of a barrel of oil will stop, keep wondering. No one knows.
Louisiana Oil & Gas Association Vice President Gifford Briggs said Wednesday there are many possible reasons for the six-month slump that has taken per barrel prices from more than $100 to less than $45 by mid-afternoon Wednesday. Among them are a surfeit of supply from producers around the globe, the U.S. included, and diminished demand from oil-importing, industrial countries in Europe and Asia as well as the U.S.
No matter the reason, though, times are tough and not getting less so.
“There is no real definitive point in time when it will change,” he said.
Speaking at LOGA’s State of the Industry luncheon today, Briggs said other causes for the decline in oil prices may include the resurgence of the dollar, geopolitics involving the U.S. and Russia or Saudi Arabia versus Iran, or speculation. No matter the cause, though, the Organization of the Petroleum Exporting Countries’ decision in November to flood the world market and response to that decision has effected what appears to be an inexorable journey south in prices.
That doesn’t necessarily spell doom for the region and state, but it does present some challenges. Among them will be keeping service industries like those in Lafayette and across Acadiana working, Briggs said.
That could mean that some companies will turn offshore for work — deepwater, with 55 rigs in the Gulf of Mexico, continues its projects already underway, seemingly unabated — and some companies may look to shale plays for natural gas, such as the Haynesville in northwestern Louisiana, and shun the downward slide in oil prices.
“Because the industry is here, and because of our innovation, Louisiana can still be the beneficiary of any energy renaissance,” Briggs said after his presentation. But he added that oil and gas companies have work to do — much of that is political — to ensure Louisiana offers the business environment that will entice oil and gas companies to invest here.
Briggs said oil and gas has completed flipped its investment in Louisiana since he joined LOGA about seven years ago. It has gone from 82 percent investment in natural gas in 2008 to 82 percent of investment in oil in 2015. U.S. oil production has soared from 5 million barrels a day in 2008 to almost 10 million barrels in 2015 — a 95 percent increase.
The consequence of that shift, he said, has been a decrease in the price per barrel.
Decreasing prices have meant oil producers have become hesitant to drill. Since November, he said, the U.S. rig count has declined by about 200. In Louisiana, the rig count has slipped to 114 from more than 400 in the1980s. Offshore, there are still 55 rigs. In south Louisiana, the land rig count has slipped from 44 in 2001 to 17 in 2015. At points last year, the south Louisiana land rig count slipped to a dozen.
Other oil-producing countries are also facing challenges. Break-even prices for a barrel of oil range from $140 a barrel in Iran to $60 a barrel in Quatar, with many producers selling cheap. The break-even point for Russia is $104; Equador, $121; Saudi Arabia, $98; Angola, $95; Kuwait, $70. All are selling their product under cost.
In Louisiana, LOGA spokesman Ragan Dickens said, break even points can vary widely depending upon the company, the method of drilling and whether the rig in on land or offshore. For example, horizontal drilling in hydraulic fracturing is a more expensive process, with break even points that can run at $80; offshore rigs might operate with a much lower break even point.
Because some companies are considering cutting their exploration and drilling budgets or even considering layoffs, Dickens said, their break even point may have been reached at the current per barrel price.
The difference for some OPEC countries is their huge reserves, Briggs said, suggesting it could take a year for those reserves to run low.
Briggs said Louisiana oil and gas supporters face political challenges in 2015, with open races for governor, attorney general and state Legislature, among others. In addition, because local political bodies have taken legal action against the industry, Briggs said, LOGA must be vigilant in vetting candidates everywhere in the state, including in areas where oil and gas plays a large part in the local economy.
Further, he said, LOGA must foster and support legislation that protects oil and gas during the 2015 legislative session. LOGA enjoyed success with oil and gas legislation in 2014, he said, but faces new challenges in Baton Rouge this spring as the state government faces a huge deficit.
The goal, he said, is to protect oil and gas interests from legislation that would impose new fees or taxes on oil and gas to offset the looming state budget crisis.
LOGA President Don Briggs said after the presentation that he expects oil service companies will work with exploration and drilling companies to cut prices and keep oil services company workers employed through what appears to be a difficult year.
Gifford Briggs said as much in his presentation, noting that some oilfield workers — like electricians and welders — offer skills that are easily transferable to other industries.
Among press outlets covering LOGA’s presentation was Al Jazeera America, which is crafting a documentary on coastal environmental issues.
Paul Abowd, an associate producer for Al Jazeera’s Fault Lines program, said his crew from Washington, D.C. had been in the state about a week, visiting the coast and talking with people concerned with coastal issues related to oil and gas.
by Ken Stickney
http://goo.gl/vGxk7q