After rising above $80 a barrel in May for the first time since November 2014, Brent crude oil prices have receded a bit in the past two weeks.
Still, for Louisiana’s hard-hit energy industry, the market’s brief flirtation with that long-elusive benchmark offered some reason for optimism, even though oil producers in the Gulf of Mexico are proceeding cautiously.
“Our economy has leveled off, and we’re looking for higher prices that will help us, but it all comes down to exploration in the Gulf,” said Frank Fink, the economic development director for oil-dependent St. Mary Parish.
“There is some activity,” Fink added. “The question is: Is it enough to bring the oil field back to where it was? I don’t think so. Not at the moment.”
That’s the question being asked throughout Louisiana’s oil patch. Crude prices are almost 50 percent higher than a year ago, buoyed in part by geopolitical problems faced by Iran and Venezuela. But many in Louisiana’s oil and gas industry are still holding their breath, waiting for an increase in drilling activity to begin lifting their bottom lines.
GULF OF MEXICO — Dressed in work boots, blue overalls and a hard hat, Rep. Steve Scalise, the U.S. House majority whip, took in the view from …
“I’m glad that our customers are starting to make money, especially with the major oil companies, but I can tell you today that the trickle-down theory has not happened,” Todd Hornbeck, head of Covington-based Hornbeck Offshore Services, a marine transportation and oil field services company, said last week at the Louisiana Energy Conference in New Orleans.
“I really think this market is going to start to stabilize,” Hornbeck added, “but we’re still going to have a lot of volatility from quarter to quarter.”
Brent crude prices averaged $72 a barrel in April, up $6 from March and the first time average monthly prices surpassed $70 a barrel since late 2014. Looking ahead, federal forecasts suggest prices will average $71 a barrel for 2018 and fall to $66 a barrel in 2019.
On Friday, West Texas Intermediate crude, the U.S. benchmark, closed at almost $66 a barrel in New York, up from about $46 a barrel last year. Brent crude, the international benchmark followed by many refineries, closed at nearly $77 a barrel in London.
The recent gains come despite rising U.S. production, thanks largely to lower-cost production at highly productive, cheap-to-drill shale formations being developed onshore, in areas such as the Permian Basin in western Texas.
U.S. oil production averaged 10.5 million barrels a day in April, 120,000 barrels more than in March, according to the U.S. Energy Information Administration. The federal agency expects that figure to average 10.7 million barrels in 2018, up from 9.4 million in 2017, and climb to 11.9 million barrels in 2019.
Already, consumers are feeling the impacts of rising prices at the pump. With the summer driving season approaching, gasoline prices have been on the rise, and regular unleaded gas is forecast to average $2.90 a gallon this summer, nearly 50 cents higher than last summer.
But industry analysts and experts believe the recent run-up in crude prices was a symptom of issues facing oil-producing countries Iran and Venezuela, rather than a result of OPEC’s ongoing effort — first implemented in January 2017 — to rein in a global oil glut.
Revived U.S. sanctions on Iran would make it more difficult for Tehran to sell its oil abroad, potentially leading to further price rises, at least in the short term. And in Venezuela, oil production has slid nearly 40 percent, to 1.4 million barrels per day, over the last four years as the country’s economy has fallen into a tailspin.
Still, the recent uptick in prices "is not going to push the needle in terms of a whole new wave of leasing activity or development activity,” said David Dismukes, executive director of LSU’s Center for Energy Studies.
Drilling activity in the Gulf has lagged during oil’s recent boom-or-bust cycle. Last week, only 18 rigs were drilling in the deepwater Gulf, according to figures from Houston-based Baker Hughes. That’s five fewer than last year, and down from 52 at the same time five years ago.
In all, 1,060 rigs were drilling in the U.S., which was up 144 from a year ago.
Despite tepid drilling activity in the Gulf, federal officials say they see improvement.
Louisiana political veteran Scott Angelle, who has led the federal Bureau of Safety and Environmental Enforcement, a branch of the U.S. Interior Department that regulates offshore drilling, since last year, pointed to an increase in the number of permits for new wells that have been issued recently.
In fact, 15 new deepwater wells were permitted in April, bringing the total to 35 for the first four months of the year, almost twice as many as during the same period last year.
Angelle called it “a leading indicator that there’s some confidence in the marketplace.”
Many experts say that higher energy prices are needed to restore the nearly 20,000 jobs that Louisiana's mining and logging sector, which includes the oil and gas industry, has shed over the past five years.
Still, Angelle has been working to realize President Donald Trump’s vision for an “energy revolution,” including efforts to pare back drilling industry regulations.
Dozens of new restrictions were put in place by the Obama administration in the wake of the 2010 Deepwater Horizon disaster, which killed 11 men and spilled millions of barrels of oil into the Gulf. But industry leaders said the new rules added costs that hamper drilling activity.
“The concerns and issues involve certain regulatory provisions that impose undue burdens on oil and natural gas operators, but do not significantly enhance worker safety or environmental protection,“ BSEE said in a notice published last month in the Federal Register.
Easing the regulatory burden could save oil and gas companies an estimated $95 million a year over the next decade. The 2010 oil spill cost BP tens of billions of dollars in clean-up costs, legal settlements and penalties.
In an interview, Angelle said he has targeted regulations that “do not provide a level of safety but at the same time kind of steer investment away from the Gulf.”
“We didn’t take a chainsaw to these regulations,” he said. “We used the scalpel. We were very disciplined.”
Although the talk about rolling back regulations pleases industry executives, some environmentalists question whether the industry’s leading regulator is putting too much emphasis on helping companies reduce costs, raising questions about whether safety is being compromised in favor of production.
“With all respect, that’s not (the BSEE director's) job. His job is to make sure everything is done as safely as possible,” said Donald Boesch, president of the University of Maryland's Center for Environmental Science, who had a hand in shaping the post-BP spill safety reforms.
While there likely are ways to improve some existing regulations, making changes largely for economic reasons is the wrong approach, Boesch said, especially when it concerns key equipment that played a role in the BP disaster.
The cost of regulation is “not a factor in (companies') decision to drill for more oil, and until oil gets back up to the $100-plus level, they’re not going to spend a lot of money in developing new oil and gas resources,” he said. “The premise that by reducing the burden, you can produce more energy for the nation, just doesn’t make sense in terms of the numbers.”
But in hard-hit St. Mary Parish, unemployment was about 6.6 percent in March, which was 2.2 percentage points better than a year ago. Fink, the parish’s economic development leader, is hoping that by now, the industry has turned a corner.
“We’re just looking for a comeback, and we don’t believe it’s going to be what it was,” he said. “It’s going to be good, but not what it was, and that’s been the story of our life here."
“Everybody holds their breath and waits for the oil field to come back,” he added. “It’s going to come back, but it’s not going to be what it was.”