Will the Gulf Come Back? If so, when?

Will the Gulf Come Back? If so, when?

While 400 business leaders, including a few Billeaud Companies Board of Directors, Staff Members and Guests, politely attended Loren Scott’s annual Louisiana Economic Outlook, put on by One Acadiana, that is about all anyone in the crowd really cared about. Sure, we want to know about employment, wages, new companies coming to town, etc., etc., but like a farmer in a drought, all we really want to know is “When is it going to rain?”.

Dr. Scott summarized Lafayette MSA Forecast this way in his 127 page report (the Lafayette section on pages 76-85 is more than worth the read):

“Oil prices rising to $80 a barrel is expected to revive the Lafayette MSA and that, combined with solid performance by the MSA’s Big Five—Stuller, Acadian Ambulance, the Schumacher Group, CGI, and LHC—is expected to generate 1,400 new jobs (+0.7%) in 2019 and a more robust 4,900 jobs (+2.4%) in 2020.”


Sure, it’s a very good thing that Lafayette and Acadiana have diversified its economy, so maybe we shouldn’t be so concerned about the oil industry.  Technology, health care along with local economic stalwarts Acadiana Ambulance, Stuller and UL Lafayette make enormous economic contributions to our area.  But the oil and gas industry is in our blood, it’s how we gauge our economic well-being..  Diversification has paid the bills, kept us going, but we want to “cut a fat hog”, get the good ole days back, and that fortune lies in the Gulf of Mexico.

I can still vividly remember Thanksgiving of 2014, while quietly attending my annual family feast, a massacreof our local economy was taking place on the other side of the world.  As it had time and time again, decisions far from Acadiana set in motion local economic demise, and we could do nothing about it.  Boom turned to bust in the time it took to slice the turkey.  Oil prices tumbled, the rig count dried up in the Gulf as fracking plays in areas, not Louisiana, were catching on.

So set in motion the current state of oil and gas exploration in the Gulf of Mexico.  The rig count in the gulf dropped from 53 to just 17, a couple of months ago.  Rigs were idled, boats docked, payrolls cut. It was an all too familiar story.  As prices have recovered since 2014, fracking in West Texas and many other areas are now, the low cost rage.  No need to brave the risky, long term exploration of the Gulf when there’s gold to be had in “them there hills”.

Add in the caustic legal and political environment of Louisiana toward the Industry, many have been left to wonder if the Gulf would ever come back, were the good ole days behind us?

But riches still exist in the Gulf, big ones, and if there is any real hope in Scott’s forecast, it’s about the Gulf.

“We made the case that oil prices should rise from $65 a barrel this year to $80 in 2020. What offshore investors need to get comfortable about returning to the Gulf is not only higher prices but also a sense that prices will be stable-to-moving-upward. Prices have now been rising for three years and we are projecting another two years of rising prices.”

Rest assured, there has been an enormous investment made in the Gulf, one that will not be disregarded. Scott points out that once the money to fund exploration returns, as prices rise, and long term projections firm up, the gulf will be back and, in his opinion, maybe by 2020.

Scott also pointed out that there has been a drastic reduction in the break-even point of exploration in the Gulf.  As recently as a couple of years ago $60+ was needed for a profitable offshore well, that price has dropped significantly to below $50 and continues to fall.  The collapse of exploration offshore has everyone begging for work, so, as you can imagine, costs for that work has fallen.

Remarkable technological advances have been made in the fracking process and directional drilling. This has dramatically driven down the cost of drilling on land, many of the same sort of advancements have been made offshore.  The combination of lower service prices and new technology has drastically reduced the cost of a well, thereby making the investment potential even more enticing for those funding Gulf of Mexico exploration.

Scott cited some other evidence that a return to the Gulf maybe already underway.  At the Gulf of Mexico lease sale in August, bids were up by 39% compared to previous sales.  Another good “indicator”, is the fact that, so far in 2018, traffic on LA 1 Expressway leading into Port Fourchon, the main port for materials and supplies to be transported into the Gulf, has been up steadily.  He also reports that Offshore Engineering Services, a company that runs casing pipe in wells and operates tugs, expects 15% growth.  Additionally, activity at the Port of New Iberia has increased with several companies seeing new activity as oil prices rise.

Rising prices, predictability and better investment environment contribute to Scott’s “Pro-Gulf” Summary:

“All of these indicators are consistent with our forecast that a reviving energy sector will make 2018 a “trough” year and 2019 will be the beginnings of a very solid recovery for Lafayette.”

Finally, it is good to hear some good news about the Gulf of Mexico. Forecasts are just that, forecasts, this all remains to be seen.  We have all been “just surviving” since that fateful 2014 Thanksgiving, maybe there will be some tenderloin on the holiday table next year?  I certainly hope so.

Comments, questions?

Steven P. Hebert, President & CEO, Billeaud Companies

Email: sph@billeaudcompanies.com


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