Two keynote addresses on different days of the Louisiana Gulf Coast Oil Exposition offered divergent views on the future of oil prices, as well as advice to industry professionals on how to think about that future.
BP’s Gulf of Mexico projects manager, Ryan Malone, urged the industry to adjust to the reality of $50-per-barrel prices and detailed how BP is doing so, including a variety of cost-cutting measures. By contrast, lobbyist Randall Luthi, noting that his audience likely included many vendors who service producers, said the sort of cost cutting to profitability in a $50-per-barrel environment is “not a sustainable situation.”
“The reality is we need to have prices start to creep back into the $70s,” said Luthi, who is president of the National Ocean Industries Association.
Malone and Luthi addressed luncheon audiences as part of the three-day LAGCOE exposition, held every two years at the Cajundome in Lafayette.
Crude oil cost $109.89 per barrel in June 2014, according to www.macrotrends.net. It plummeted drastically over the next year and a half amid frenzied domestic production. By January 2016, the price was $29.67 per barrel. The crash has resulted in thousands of job losses in the offshore oil industry, and consequences have been especially dire in metropolitan regions such as Lafayette and Houma, with high concentrations of service companies. Gross domestic product in the Lafayette area last year shrank 11.3 percent, the third-worst metropolitan decline in the country, according to the Bureau of Economic Analysis.
Oil prices have recovered somewhat in fits and starts, and on Wednesday, it stood at $52.05. That’s where it’s likely to hover for an extended period of time, Malone said Tuesday, describing what he said is BP’s corporate belief. The boom times preceding summer 2014 were not good for the industry, which became accustomed to unsustainable $100-per-barrel prices, Malone said. To adapt, he said, BP has cut half its fleet of helicopters and vessels, as well as much of its onshore personnel in the Gulf of Mexico. Other BP measures include pooling risk with partner ventures and using new technology to reduce drilling costs.
As a result, BP has achieved a break-even price point of $40 per barrel for Gulf operations, while still setting aside $2 billion for capital investment, Malone said. BP’s cash margin for Gulf operations is better now than it was when oil cost $80 per barrel, he said.
“To continue to operate in the deep-water business you must change the business model,” Malone said. “People need to make a profit at the sub-$40 price on most deep-water projects.”
On Wednesday, Luthi told the audience in rhyming cadence that prognosticators last year advised the industry to be “lean and mean” in 2016.
“I’ve now had to go to ‘lean and mean’ through ’17. We might see some green in ’18, but there will be plenty in 2020,” Luthi said, “because most of our oil prognosticators are now saying there will be an oil supply shortage in 2020.”
Luthi jokingly urged caution by saying those prognosticators were alongside weather forecasters, adding, “I do hope this time the forecasters are right, that we have hit the bottom and that we are continuing to slowly come up.”
In a brief interview after his speech, Luthi said most industry people are, in fact, in line with BP’s forecast, “except a few” who say 2020 will see increases.
LAGCOE’s chairman-elect, Greg Stutes, said the crash has devastated a variety of businesses in the Lafayette area and that offshore service companies have realized “we have to figure out how to survive at $50 barrel.”
“That means I’ve got to close six districts, I’ve got to focus in this location, I can longer service that area,” said Stutes, who is a consultant with Completion Specialists in Lafayette. “You have to restructure your organization to survive.”