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Monday, May 4, 2020

Oil Patch Blues

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Experts say it is as bad as you can imagine it

According to figures released by the Louisiana Oil and Gas Association last week, West Texas Intermediate futures for oil traded below $11 a barrel for the first time since 1986. LOGA said that was a drop in price of over 80% since the beginning of the year.

Needless to say, the oil and gas sector is feeling the effects of COVID -19 like everyone else.

Patrick Courreges, the communication director for the Louisiana Department of Natural Resources, said, “You’ve had this perfect storm of two things hitting. You’ve had the demand just dropping off a cliff with the lower prices. The U.S. and other countries are really buckling down on stay-at-home orders, shutting down businesses. Here comes Russia and Saudi Arabia deciding it’s time to flood the market and have a price war. You have a combination of huge oversupply and a sudden sharp cut in demand globally, which drives prices to nothing.”

Courreges said this isn’t the first time things have been bad in the oil patch. “In most folks’ lifetimes, this is probably as bad as you can imagine it. But we’ve seen the pattern before. Companies that had room to cut will be cutting back. They’ll be cutting people; they’ll be cutting operations to survive. And some will find that they can’t cut enough, and they’re going to go under.”

“The crisis facing the industry is impossible to overstate,” Louisiana Oil & Gas Association President Gifford Briggs said in a statement released in mid-April. “There is no magic pill that will save the thousands of jobs that will be lost, but we can immediately take steps to limit the losses.

“Until demand rebounds, if industry is going to survive, we will need severance tax relief, royalty relief and an end to the governmentsponsored coastal lawsuits. State leaders must take comprehensive action immediately, or we will lose an entire industry, and the jobs, wages, families and communities that are sustained by it.

“Many of our members are being told they cannot deliver crude in May due to storage constraints, and as a result has begun planning to shut in 100% of their Louisiana production,” Briggs added. “It’s an absolute worst-case scenario.”

Courreges said drilling continues in old, shallow oil fields in north Louisiana, with operators working long hours to do whatever it takes to make it worth their while. He said the big questions are, how long will it take for the industry to recover, and what will it look like after the worst is over? “What companies manage to hang on? What folks manage to hang on to their jobs, what folks get their jobs back? Those are the questions we can’t answer right now. We’re still on the front end of this.”

There is a bright spot for north Louisiana, according to Courreges: natural gas. While prices have suffered some decline, operations in the Haynesville Shale and Lower Cotton Valley plays are continuing, and the companies are working at finding ways to remain profitable.

“You’re not going to see 150 rigs,” Courreges said, “but you are going to see a steady couple of dozen still making the gas. The two top years of the Haynesville, I think, were 2012 and 2013, during the big Haynesville rush, peaked out at about 2.9 trillion cubic feet for the state’s production of natural gas. Then it declined. The last three years it’s been picking up again. Last year, we made 3.1 trillion feet of natural gas, which is the most this state has produced since 1978.” The increase, he said, was finding new uses for natural gas in transportation and other fields.

The implication is that, even in bad times, the oil patch searches for ways to make it work.

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