Cheap oil hits business, government

The price of oil has fallen for eight consecutive weeks, the longest streak since 1986. Oil is down 34 percent from its high of $61.43 this year, and 62 percent from its high of $107.26 last year, the article stated.
As of this morning, light, sweet crude futures for delivery in October fell as low as $37.75, according to marketwatch.com. However, prices quickly moved back above $38 and were at $38.33 a barrel in mid-morning trade, the website stated.
State Sen. Bret Allain, R-Franklin, who serves on the Senate Finance Committee, said, “Obviously, every time the price of oil goes down, it puts a larger and larger hole in the state budget that’ll have to be made up elsewhere, or we’ll have to do cuts elsewhere.”
When oil dropped from $100 per barrel to $50 a barrel last year, that dip caused the state budget revenues to decrease by $450 million, Allain said.
For every $10 per barrel drop in the price of crude oil, the state’s budget receives a $40 million hit, Allain said.
“We’re holistically going to have to look at the entire budget,” Allain said. “There’s no way we can identify anything right now.”
Legislators will have to make lots of structural changes to the budget to combat the dropping oil prices, Allain said.
“We’re going to have to try to find savings, and we’re going to have to try to find revenues,” Allain said. “That’s the only two things you can do. You either have to decrease your spending or increase your revenue.”
Port of Morgan City Executive Director Raymond “Mac” Wade said the continually dropping oil prices are hurting the south Louisiana economy, boat companies and fabrication yards.
“Everything has slowed down with the price of oil falling like this,” Wade said.
Companies are making lots of cutbacks due to the low oil prices, which is why port officials are pursuing more import-export business not related to the oil and gas industry, Wade said. Oil and gas industry businesses are being cautious about spending money on any projects, Wade said.
The 20th import-export ship since August 2014 left the Port of Morgan City on Sunday night, carrying 3,900 tons of rice to Haiti, Wade said. He expects the ship to return in two to three weeks to pick up another 3,000 tons of rice. Tugboats, barges and crews came in with the ship, Wade said.
Even with the new import-export business in Morgan City, it’s still not enough to make up for the downturn in the oil and gas industry, Wade said.
All the industry leaders Wade has talked to say the low oil prices are causing a decline in business, and the downturn in business is only expected to get worse, he said.
“Everybody’s predicting for the price of oil to continue to fall,” Wade said.
Businesses are “just trying to survive” until the oil and gas economy makes a turnaround, Wade said.
South Louisiana and the Gulf Coast are not the only regions being affected by the downturn in oil prices, Wade said.
“It’s anywhere there’s energy (business),” Wade said.
According to an Aug. 18 article in Marine Log magazine, Johnny Conrad, president and CEO of Morgan City-based shipbuilder Conrad Industries, said, “While we remain optimistic about the long-term prospects for our business, we continue to experience near term challenges.”
The company had a decline in demand for inland tank barges primarily used to transport petroleum products produced from shale plays, and also a delay from its customers in placing orders for the larger projects that company officials expected to convert to backlog, Conrad said.
“Although bid activity has been good and we are pursuing various opportunities, we have not signed contracts as anticipated which is leading to gaps in our production schedules,” Conrad said. “The decline in demand and underperformance on some of our newer jobs have resulted in a decline in revenue, margins and profits.”
Conrad has experienced “a softer repair market, which we believe is due primarily to the decline in crude oil prices,” he said.
“These factors negatively impacted our results for the first six months of 2015, and we currently expect these factors to negatively impact our financial performance during 2015, compared to 2014, and possibly through the first six months of 2016,” Conrad said.\

This story was written by Zachary Fitzgerald of The Daily Review staff. Reach him at zfitzgerald@daily-review.com.