With the price of oil down to its lowest point in more than a decade, healthy oil- and gas-related companies are struggling to stay alive by slashing payroll and expenses. But as 10/12 Industry Report details in its cover story from the new quarterly issue, there’s only so much they can cut while still remaining viable.
Quay McKnight, chairman of M&M International in Broussard, which sells well-control valves for oil and gas drilling, says his company remains reasonably profitable, but only through painful cost-cutting. The company has had two rounds of layoffs since rig counts started falling at the end of 2014, reducing its workforce from 100 to about 70.
McKnight says he thought his company was lean enough to hold steady for a while. But after watching oil prices dip below $30 a barrel in mid-January, he’s not so sure.
“I don’t know what’s going to happen next week,” he says. “We depend heavily on drilling, and what those guys do is what we have to respond to. I’m not sure, if prices continue to fall, what that looks like.”
McKnight’s father survived the oil bust of the 1980s. He came away with an important lesson that he hammered into his son: Do not get into debt.
“We choose to grow organically,” McKnight says. “And in times like this, it’s a godsend.”
McKnight considers himself a pretty positive guy, and he believes the future will be bright. The oil industry is cyclical, and it always makes a comeback.
Lower prices lead to less production, but the demand for oil doesn’t go away. So eventually the market tends to rebalance. This time probably will be no different.
But for now there’s not much optimism in the oil business. The strong likely will survive, but the rest may fall away, and it might get worse before it gets any better.
According to the most recent Louisiana Workforce Commission report, 42,500 people were working in mining and logging, the category that includes oil and gas, last December. That’s a 21% decrease from two years prior, and it’s safe to assume the numbers are still falling.
Moncla Companies, a Lafayette rig and oil services company, has reportedly gone from 633 employees in 2014 to 305 in December. Oil-and-gas equipment supplier National Oilwell Varco on Jan. 7 closed a Houma facility that employed 80 people, according to the most recent mass layoff announcement by the LWC.
Louisiana Oil and Gas Association President Don Briggs says the number of active rigs in Louisiana is at a “record low,” even compared to the nadir of the 1980s. Only one rig is running in the state’s inland waters, Briggs says, while only eight are running on land in south Louisiana and only a couple dozen in the deepwater of the Gulf of Mexico.
That’s leaving way too many service companies trying to feed off of too few rigs.
Read the full 10/12 Industry Report cover story, and check out the full lineup of stories from the new quarterly issue. Send feedback, story ideas and company news to editor@1012industryreport.com.
