US oil and gas industry stagnating to dangerous levels, job losses rising

posted at 12:41 pm on February 29, 2016 by Jazz Shaw

Not that you needed another reason to despair this week, but I was going over some of the energy industry reports last night and the news isn’t great. Global oil and gas prices have continues to languish at near record lows for the modern era and even with all of the belt tightening that’s been going on across the industry, there’s simply no avoiding some production and staffing cuts. This will be particularly bitter medicine in North Dakota, a state which enjoyed the lowest levels of unemployment in the nation through the financial crisis primarily because of the oil and gas boom. But now even they are feeling the pinch as one of the state’s largest producers (and employers) suspends major operations. (AP)

North Dakota’s largest oil producer says it will cut all spending by 80 percent in the state and suspend its well-completion operations in April due to depressed crude prices.

Denver-based Whiting Petroleum Corp. said in an earnings report this week that it will operate only two rigs in the state. Until prices rebound, wells that are drilled won’t undergo hydraulic fracturing, or fracking, a process that uses pressurized fluid and tiny particles to break open oil and gas bearing rock up to 2 miles underground.

Whiting employs a lot of people and seeing many of their rigs go idle is bad news for the state of North Dakota. They’re currently projecting productions rates for the first quarter which will be as much as 30,000 barrels per day lower than the final quarter of 2015. They have enough wells drilled but untapped to be able to leap back into action when prices reach the profitability level again, but it will mean some lean times until then.

They’re hardly the only ones. The total rig count for the United States has just reached yet another negative milestone and is approaching the lowest number seen in generations. (Oil & Gas Journal)

The US rig count dropped 12 units to 502 during the week ended Feb. 26, according to Baker Hughes Inc. data. While the decline is the smallest thus far this year, it represents the eighth straight weekly double-digit drop to begin 2016.

The total is the lowest since Apr. 30, 1999, a week after the 1998-99 downturn hit its bottom of 488. With additional losses in the coming weeks, the current count could dive to a level not seen in generations.

Financial services firm Cowen & Co. this week forecast an onshore rig count bottom of 375-400, possibly occurring in April.

We can hasten the recovery if there is a national will to do so, but when politicians become complacent in an improving economy it often seems as if the impetus simply isn’t there. The Obama administration’s EPA continues to swing for the fences with new regulations which make production efforts even more challenging and we’re seeing problems at the state level as well. For only one example, Virginia is suddenly showing less interest in energy production now that Terry McAuliffe and his Lt. Governor, Ralph Northam are in charge. In fact, they’ve decide to pass on the next round of offshore oil leases because it would upset the sea birds or something.

Virginia’s lieutenant governor asked the US Bureau of Ocean Energy Management to remove a lease sale off the commonwealth’s coast from the next US Outer Continental Shelf 5-year program.

“Over the years, I have witnessed the demise of the Chesapeake Bay and decided to run for public office in large part to work towards its restoration,” Ralph S. Northam (D) said in a Feb. 25 letter to BOEM Director Abigail Ross Hopper.

He said almost half of the Hampton Roads region’s economy is tied to US military operations, which Virginia constantly competes with other states to retain and grow. Tourism is Virginia’s fifth largest private employer, with travelers spending $22.4 billion/year and supporting more than 200,000 jobs, Northam said.

This is pretty much the opposite of what we need. Rather than reducing supply we need to be increasing demand. One way to do that is to move more aggressively on exports across the board, particularly in Europe where our allies are hungry for reliable energy suppliers not tied to Vladimir Putin at the waist. We can also make up for some of the lost jobs by more quickly approving pipeline projects such as the Constitution Pipeline. These expansions and improvements to our energy infrastructure will not only create jobs now, but upgrade our fuel transport systems safely and prepare us to continue as an energy leader when demand (and prices) are back on the rise.

This is not the time to become complacent. That’s how we’ve been beaten to the punch in the past. Now that we’ve finally got the upper hand we should be focusing our energy and attention to the task of keeping it for the long run.


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