Louisiana oil experts are looking to 2017 with some guarded optimism for the industry as prices tick upward, but sustained drilling in the Gulf of Mexico and onshore in the U.S. could be riddled with caveats.
“I’m mildly optimistic,” says David Dismukes, executive director of LSU’s Center for Energy Studies. “It’s still going to take a couple of months to figure out the reality of where the market is going versus the hype and the talk, but at a minimum we’re going to be in a better situation in 2017 than we were in 2016.”
The Organization of the Petroleum Exporting Countries agreed in November to begin cutting production, and prices have inched up to the mid-$50 per barrel range. The group has not yet cut output, but Reuters reports today oil output in December fell among some OPEC countries.
If OPEC nations honor the agreement, prices should increase as the demand for oil remains healthy around the globe, Dismukes says. If that happens, the U.S. could see drilling in more prolific, established basins, but Louisiana is not likely to see an increase in drilling.
“The prices could increase to $100 (per barrel) and I don’t think anybody else would drill in Louisiana,” he says.
The state granted 443 drilling permits for onshore drilling in 2016, not including December. That number is down from 643 in 2015 and nearly 2,000 in 2010, according to Louisiana Department of Conservation data. The average number of active rigs per month in 2016 was down to 46. In 2014, the state averaged 110 rigs per month and six years ago averaged nearly 200 per month.
Dismukes says the state budget will get a lift from increased prices in oil, as royalties and severance taxes pick up. However, a lack of new drilling in the state would eventually cause revenues to decline—regardless of prices—as wells go offline.
Eric Smith, associate director of Tulane University’s Energy Institute, says even though OPEC is trying to increase prices, U.S. drilling could cause the organization to end its deal as oil producing nations lose market share.
Gulf drilling is still a long ways off, Smith adds. Prices will have to rebound into the $60 per barrel range, and even then offshore drilling is an expensive and lengthy process. The Tuscaloosa Marine Shale, a rock formation that cuts through the middle of Louisiana, could eventually see some production, but it is deep and relatively expensive to get to, he says.
But there are some good signs for the industry, Smith says. The election of Republican Donald Trump as president bodes well for the rollback of some regulations on oil companies. Louisiana refineries also could see growth if more pipelines are built and as more heavy sour crude oil pours into the state.
Louisiana Oil and Gas Association President Gifford Briggs also is concerned a “seesaw battle” between U.S. producers and OPEC could drive prices down, but expects a better year in 2017 on balance.
“I’m not expecting $80 oil,” he says. “If we can get to $60 and stay there for the year, that would be really positive.”
—Sam Karlin
