LAKE CHARLES — One year ago, Louisiana’s oil and gas sector basked in the profits flowing from $100-plus oil, and the biggest worry expressed at an annual trade meeting was what would come of the “legacy lawsuits” being filed against a slew of producers.
On Thursday, at the Louisiana Oil & Gas Association’s annual meet, legacy lawsuits were almost an afterthought draped against the reality of $49-a-barrel oil.
“I think the reality is nobody has a firm grip on what is the new normal,” LOGA Vice President Gifford Briggs said. “The only certainty is uncertainty.”
This year, the 500 or so men and women at the event wanted to know when oil would rebound.
And they got an answer, albeit one with built-in caveats urging caution, from a Dutchman with a sense of humor.
The answer? Within two years, the price should rebound to about $75 a barrel with a lot of jiggles and gyrations between now and then, Credit Suisse Managing Director Jan Stuart said.
Stuart, whose company has teams of analysts who study the intricacies of the energy market, cautioned that oil could drop to the low $40s or lower and stay in that range for a while before prices on the internationally traded commodity rise.
“The market is out of whack,” Stuart said. “Forty dollars is too low.”
Stuart, who laced his presentation with humor, pointed a finger at the innovative Americans for bringing on the glut. Through trial and error, they unleashed oil and natural gas trapped in dense shale rock by improving on horizontal drilling and hydraulic fracturing techniques that had been around for decades.
The result is too much oil has been sent to a market that can’t handle the volumes.
“This is about supply. This is your fault,” he said.
Last summer, oil priced at over $100 a barrel started dropping as forecasts for demand showed little growth. At the same time, U.S. oil production was climbing.
On Thanksgiving Day, Saudi Arabia, the driving member of the Organization of Petroleum Exporting Countries, said it would not curtail production. The announcement sent the price of oil into a tailspin.
Stuart said it’ll take time for supply to fall in line with demand. He said his analysts believe the world’s thirst for oil will grow by 1 million barrels per day annually through 2020.
The smart money is investing in oil in the U.S. over the long term, he said, rather than in the volatile fields in the Middle East or Africa or Russia.
In the microeconomies of Louisiana, meanwhile, small land-based producers are finding profits by drilling for oil and gas in mature fields and by keeping costs down.
“In our business, it’s the guy who produces it the cheapest” who succeeds, said Charles T. Goodson, chairman and chief executive of PetroQuest Energy, Inc.
Goodson said PetroQuest has been successful drilling horizontally into areas previously thought unproductive and getting gas and oil using hydraulic fracturing.
“There are so many rocks in north and south Louisiana where you can apply the technique,” he said.
Goodson and Shoreline Energy LLC co-owner Dan Hurley said they are turning a profit because they’ve asked the service companies such as drillers and well completion firms to drop their rates by as much as 30 percent.
William Fenstermaker, chairman of IberiaBank, cautioned that requiring service companies to drop day rates and prices for goods could force those companies to default on their loan obligations. And those bad loans would affect the banks that finance oil and gas exploration.
On the government front, don’t expect any help from President Barack Obama, said U.S. Rep. Steve Scalise, majority whip in the Republican-controlled House.
“This president is an anti-fossil fuel president” who backs “rules and regulations hostile to the oil industry, and the coal industry,” Scalise said.
Scalise, a former state legislator, said the environmentalists’ focus on climate change is “foolishness.”
“They’re still running on this global warming agenda,” he said.
Scalise said Republicans have been working with some Democrats to write legislation, such as the Keystone XL pipeline bill that was passed in the House and Senate but which Obama vetoed.
The pipeline would have transported Canadian oil to the southern U.S., including to Lake Charles, Scalise said.
“This is Canada that wants to send us the oil. They’re our friends,” he said.