Fingers Crossed

Wednesday, December 29, 2010

Despite dire forecasts in much of 2010, the oil and gas industry is optimistic about 2011.  By Nathan Stubbs

It was looking like 2010 would be a good year for oil and gas service companies, but when the BP Deepwater Horizon rig exploded on April 20 and began spewing oil into the Gulf of Mexico for three months, industry optimism quickly turned to panic about when the federal government would allow deepwater drilling to resume. “When the accident happened, it was scary for the industry as a whole,” says Ema Haq, who launched Bailey’s Catering LLC in 1999 to serve meals to offshore workers.

Fortunately for Haq and several other offshore service companies, dire predictions about industry job losses in the wake of a federal moratorium on offshore drilling never materialized. Several factors helped block the hemorrhaging, not least of which was the enormous amount of resources that BP and the federal government poured into a Gulf oil cleanup that lasted several months. Haq was able to capitalize by servicing many of the barges and other vessels BP rented out for its cleanup efforts.

“It definitely opened up some business for us,” says Haq, who notes he saw an overall increase in business in 2010 over 2009. “The drilling was slow, but at the same time I think a lot of people did very well.”

Rick Fontova, a senior vice president with Moreno Group, says his company was likewise able to adapt to the situation, and played a significant role in the decontamination of offshore vessels that were involved in the oil spill clean-up. “We were fortunate,” Fontova says. He adds that not only did Moreno Group avoid any layoffs, “we were actually able to offer additional employment opportunities to individuals.”
 
But with the cleanup now concluded, and offshore drilling permits still at a bottleneck as the federal government begins to impose stricter safety regulations, grim warnings about industry layoffs have persisted. In his Louisiana Economic Outlook 2011-2012, economist Loren Scott predicts the Lafayette MSA will lose 3,000 jobs, largely due to the stifling impact of new federal oil and gas industry regulations. The Lafayette Economic Development Authority calculates that the loss of 3,000 more jobs in 2011 would spike local unemployment from its current rate of 6 percent to more than 8 percent. Lafayette hasn’t seen unemployment that high since the oil bust of the 1980s.

However, when asked about his job loss forecast, Scott himself seems to not put too much stock in the prediction. “You need to know that the sample size in the Lafayette MSA for calculating your unemployment rate is so small you can never really put much confidence in the number anyway,” he writes in an email. “That is why we discourage journalists from drawing much attention to the number.”

Others in the industry have found reason for optimism.

LEDA President Gregg Gothreaux says it may be too early for an accurate prediction for 2011 — his organization will likely issue its forecast sometime in late January or February — but that several mitigating factors, including the oil-spill cleanup, shale drilling and refurbishing existing fields, have managed to keep the industry prospering.

“We’re cautiously optimistic,” Gothreaux says. “We see a lot of the moratorium predictions playing out, but the mitigating factors appear to be having a bigger influence than we thought.”

Don Briggs, president of the Louisiana Oil and Gas Association, says that while natural gas prices have plummeted and offshore regulations remain uncertain, he is finding more companies looking at onshore and shallow water drilling opportunities. “We see a lot of signs of money and new growth and resource plays in central Louisiana and south Louisiana,” he says. In addition, he is optimistic that the federal government is moving forward with establishing offshore regulations. “I don’t think we can expect to see the administration changing their policies any time soon, but we’re starting to see some light at the end of that tunnel that maybe they are getting ready to make some good changes.”

Briggs adds that because many local service companies have expanded internationally and diversified their services, they are now better able to weather domestic downturns. “Our industry in south Louisiana, our service sector,” he says, “when you go down [U.S.] Hwy. 90, so many of those companies are global. So many of those companies, when you look at Frank’s [Casing] and Knight [Oil Tools] and just go down the row, there’s plenty of them; they’re busy. They’ve got activity in Louisiana and in the Gulf of Mexico, but those companies are active in other states as well, and other countries.”

“So the fact that we are such a strong oil and gas industry,” Briggs continues, “in relation to production, we’re also a very strong oil and gas state and community in relation to the service sector of the industry.”

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