For the years to come, 2009 will be a year none of us will easily forget; certainly not in the near future. When you say the “pendulum has swung the other way”, it definitely has in the oil and natural gas industry. As well, we cannot talk about the state of the oil and gas industry without talking politics. The political pendulum has swung the other way and is playing a role in our industry’s direction.
In the past recent weeks, Lafayette was recognized as the eighth-best city in the country to find a job, according to employment services firm Manpower’s latest United States Employment Outlook Survey. Also the Greater Lafayette Chamber and executive director Rob Guidry were awarded the No.1 Chamber and director of the year in Louisiana. Recognitions of such is rewarding to our community and even more so because it is happening at a time when our country is in a sever recession and Louisiana’s oil and gas industry has experienced historical swings in exploration and development.
In 2008 the price of a barrel of oil broke all records hitting a high of $147 per barrel and natural gas prices soared to a record high of $13/mcf. In 2009, the pendulum swung the other way at a breakneck speed. In the matter of a few months oil prices crashed from a record high to $35 per barrel – a 76% decline. Natural gas prices followed suit, falling to a low of $2.41/mcf – an 81% decline.
With the fall of oil and natural gas prices, the decline in exploration and drilling activity was soon to follow. Oil and gas companies slashed exploration and development budgets, watching in dismay the free fall of oil and natural gas prices. For many in Louisiana and especially in oil and gas communities of Lafayette, Houma, Morgan City, and New Iberia, it was déjà vu of the mid eighties.
The US rig count peaked at 2031 active rigs in 2008 and crashed almost over night to a low of 899 rigs in January of 2009, a 56% decline. As a side note, the peak rig count in 1981 was 4,500 active rigs drilling in the US. As you can see from the graph comparing Louisiana rig activity to other major producing states, Louisiana has faired well in comparing decline rates from 2008 to 2009.
The Texas rig count has declined by 60%, Oklahoma by 64% and Louisiana by 27%. Only Pennsylvania has a growth of 96%, which is due to the growth in the Marcellus Shale. However, in doing an analysis of Louisiana rig count throughout the state, the picture is bleaker than the overall decline of 27% which it depicts.
In reality, if it were not for the current record high of 99 rigs drilling in North Louisiana, Louisiana’s overall rig count would be near 50 rigs instead of 147. We can count our blessing for the Haynesville Shale.
1992 was the worst year recorded for drilling activity in the state of Louisiana having been caused by the downturn in the Asian economy. Unfortunately, the current rig crisis we find ourselves in today has surpassed the 1992 crash. However, it appears the bottom has been reached and a slight growth is taking place.
In recent months the rig count in South Louisiana hit unprecedented record lows, shattering the 1992 lows. Twenty-five rigs drilling in the Gulf of Mexico is difficult to believe. Going back in recorded history, it was only in the 1940’s the rig count in the Gulf was in the twenties and that was because drilling in the Gulf was just getting started. In 2001, the average rig count in the Gulf of Mexico was 148 rigs. The Inland Water rig count recently bottomed out at 5 rigs and the South Louisiana Land rig count bottomed at 11 rigs.
Today, nearly 70% of the rigs drilling in the US are drilling for natural gas. A few decades ago; the opposite would have been true. There is a definite migration of the oil and gas industry moving from the conventional drilling prospect to the non-conventional natural gas resource plays. Oil is not out, but gas is the trend.
In the mid eighties, there was an effort to push the consumption of natural gas. However, due to the technology at the time, there was a mere nine years of supply. That has all changed. Today there is a conservative 150-year supply of natural gas in the US. Natural gas is the fuel of the future and the State of Louisiana has vast reserves and will be a leader in the development of those resources in Louisiana and the nation.
There are currently seven major natural gas plays being explored and developed totaling nearly 184 thousand square miles. This is not limited to other potential resource plays being evaluated today in Arkansas, and Mississippi. The potential is unlimited for the development of natural gas resource plays.
Louisiana is a vital ingredient in the makeup of our country’s energy security and future. Not only do we have the blessing of vast oil and natural gas resources, we have the infrastructure, we have the people, the technology, and the know how to develop those resources. The reason Lafayette received a top rating in the entire country for places to find a job is because we are a city of “innovators”.
Louisiana is a large consumer of natural gas. It is because of our vast natural gas reserves that we have the petro chemical industry in Louisiana, which employees tens of thousands of Louisiana citizens. Natural gas is a feedstock for the chemical industry and vital for it’s existence.
The use of natural gas to power the engines of our transportation system will be the answer to ending our ever-growing dependence on oil from countries that hate us. It makes no sense for the US to continue on a path that undermines our entire economic structure. It is not about being energy independent, it is about being energy secure.
The political pendulum has swung to the far left in regards to our President’s opinion of the oil and natural gas industry. At no time in my life have I seen the resources being spent by our industry to convince Congress of the importance of the domestic oil and gas industry to our country’s energy security. President Obama has made it very clear he does not support the industry or desires to understand it.
At the time of writing this column, the debate on a cap-and-trade system to regulate emissions, and stripping the incentives needed by the industry to explore for oil and gas was going on in Congress. Hopefully, the pendulum is now on it’s swing back to reality, and our industry can do what we do best, and that is to develop the oil and natural gas resources of our country providing energy security for the US of A.