The price of oil probably hit bottom in late August when it fell below $38 a barrel, a banking executive whose focus is the energy sector said Tuesday. He predicted oil’s slow recovery but also trouble ahead for debt-laden companies.
Jefferson Parker, a vice chairman at IberiaBank Corp, offered his assessment as keynote speaker at the Louisiana Oil & Gas Association’s fall meeting in Lafayette.
Another speaker, geologist Chris McLindon, gave a presentation disputing that oil and gas development was to blame for Louisiana’s coastal marshland losses.
Parker, who joined IberiaBank in 2009, said energy companies will have to learn to survive and make money with oil in the $45 to $60 range and well below the $100-plus height producers enjoyed before July 2014. On Tuesday, U.S. oil traded in the mid-$40s.
The price is stabilizing because production is starting to fall, mainly in the U.S., Parker said. He said there are 500,000 fewer barrels produced each day than in June. Experts believe that by the end of 2015, production will be 700,000 fewer barrels per day compared with June, and 900,000 a day fewer next year.
“I believe we have seen the bottom in the price of oil,” Parker said.
Parker later cautioned that there are plenty of other factors that could disrupt the industry further: onerous banking and environmental regulations; interest rate changes; political unrest; and weak international demand due to recessions.
High U.S. production that resulted from innovations in drilling techniques led to an oversupplied world market. The price of oil began falling from its $100 perch in July 2014 and then really began to fall after a Thanksgiving Day announcement by Saudi Arabia that it would not cut production to stabilize the price.
The price fall led to stacking drilling rigs and laying off employees by the tens of thousands, many from service companies that help producers get oil from the ground to the market. For example, Haliburton laid off 19 percent of its workforce and recently announced there would be more.
On Tuesday, the Louisiana Workforce Commission said shallow water drilling company Hercules Offshore Inc. gave notice it would lay off another 50 hands who work in the Gulf of Mexico.
Many energy companies and the institutions that lent them money are eyeing another threat, Parker said. In 2020, a total of $24.6 billion in loans made to the industry are due to be repaid and much of the money is unlikely to be repaid, or repaid on time, he said.
“There is a lot of debt that’s going to have to be recapitalized,” he said.
LOGA’s audience Tuesday also heard McLindon, a geologist, dispute what’s been widely reported in the media — that oil and gas drilling is responsible for the loss of Louisiana’s coastal marsh.
McLindon said the loss is due to natural subsidence, geologic faults and rising sea levels.
“We’re dealing with an epidemic of scientific illiteracy in the United States,” McLindon said, citing as examples stories by the New York Times and ProPublica.
“This is fundamental junk science,” he said.
McLindon said energy geologists look for geologic faults because that’s where the oil and gas is. He said those same faults, which are natural, often hasten subsidence of the coast, but because wells were drilled there to extract oil and gas, the industry gets the blame.
He acknowledged that coastal loss is a problem that needs serious study. McLindon told LOGA attendees that funding is needed to study the issue at the university level.