Falling oil prices ripple through coast economy

Diving oil prices historically have affected the Tri-City area drastically, but business leaders say diversification is a buoy they can hold on to.
Benchmark U.S. crude fell $1.65, or 2.9 percent, to $55.48 a barrel Monday. Oil peaked at $107 a barrel in June but has plunged since then due to weak demand and abundant supplies, especially after Saudi Arabia and other OPEC members agreed to maintain production levels.
The decreasing prices have a ripple effect in the local oil field and oil services-related industries
Already, layoffs have been initiated by service companies like Halliburton and Hercules Offshore. And oil producer ConocoPhillips pared its 2015 drilling budget by deferring drilling in America’s shale developments. Both announcements, made in December, likely will be followed by news of other companies cutting back, according to The Advocate, which reported the layoffs.
Port of Morgan City Executive Director Raymond “Mac” Wade said it takes 10 to 15 people on land to provide for one person on a drilling rig.
“I think it’s still early. I don’t think the price of oil has bottomed out yet, and I don’t know where that’s going to be,” Wade said.
Stacking rigs affects boating, service companies and grocers, he added.
However, fabrication companies in the area are still very busy.
“What I’m not hearing is their backlogs … that’s what’s scary,” Wade said, adding that some major companies located here are not laying off locally, but they’re not hiring either.
“You haven’t heard the big impact here yet, but if it continues like this, it could be a slow first and second quarter next year … right now you don’t hear a lot of optimism out there,” Wade said.
Meanwhile, the port itself is faring well.
Port business is picking up, Wade said, because of its import/export work that has nothing to do with oil prices.
“This is good for the community because it has no bearing right now with the price of oil,” Wade said.
As oil prices go down, oil companies’ capital budgets decrease, but they still have infrastructure needs. When oil prices are low, companies prefer to purchase refurbished equipment as opposed to new when prices are high, Marc Distefano, vice president Amelia’s Allison Marine, said.
By the nature of its business of asset modification including platform fabrication, repair and outfitting, Allison Marine’s offerings are diversified.
“Companies that are diversified, can do more with less, prevail,” through downturns, Distefano said.
As to why prices are dropping so drastically, supply and demand are the fundamental problem, according to Distefano.
There is an “oversupply based on global demand for oil products,” he said.
He predicted oil prices would hit rock bottom around August or September.
“We (as an industry and in the area) have to get used to sub-$70 barrel oil,” Distefano said.
Customers, he said, are revisiting their capital expenditures, but not scrapping their 2015 plans.
Meanwhile, Allison Marine intends to hire additional workers, primarily welders and fitters, in the first quarter of 2015, Distefano said.
Bill Marin, Patterson State Bank president, said his bank does have customers who are in service companies related to the oil field, but there is always a lag with what’s happening in the industry and when it begins to affect banks.
“Day rates have trended downward on equipment used in the oil field in general ongoing,” Marin explained.
That, he said, has a trickle-down effect.
“If day rates are down from companies that own and rent equipment, their income is down. If that happens, payroll comes down. That trickles down to consumer spending habits,” he said.
Protracted low prices, he said, have a “wearing effect” on the local economy.
The up side in this area, though, is managers and owners of St. Mary Parish companies have experienced this before and know how to prepare for swings in prices.
This morning, regular gasoline prices averaged $2.21 in Louisiana, according to gasbuddy.com. Among regional prices were Morgan City, $2.23; Franklin, $2.11; Houma, $1.89; Thibodaux, $2.19; Lafayette, $2.07; New Orleans, $1.87; and Baton Rouge $1.75.