There’s a perfect storm battering Louisiana right now. The first blast came when a global economic slowdown occurred due to the coronavirus (COVID-19) outbreak causing lower global demand for oil. China is the world’s largest importer of crude oil or at least it was before the virus outbreak. As global demand fell, oil prices sank in some cases to lows not seen in many years.
Next, talks between OPEC and Russia erupted into a very public disagreement over a reduction in production levels. Saudi Arabia unilaterally triggered a harsh reduction in crude oil production which sank prices even lower.
The third wave of the storm was COVID-19’s explosion from an epidemic centered in China into a worldwide pandemic, including victims in all 50 of the United States. Let’s take a look at how the novel COVID-19 affects Louisiana’s oil and gas industry.
Future Investments in Exploration in Danger. When you consider what’s happened over the last couple of years, the U.S./China trade wars set the stage for this perfect storm. Now that COVID-19 has caused China to close its borders and the U.S. to restrict travel to and from Asian countries and others, the lower demand for oil and gas is sure to give investors in Louisiana pause. Add to that uncertainty the fact that Liquefied Natural Gas (LNG) prices fell to their lowest level ever. Much of the oil and gas exploration in Louisiana developed to take advantage of the energy demands of Southeast Asia and China. This perfect storm taking place against the turbulent pricing backdrop means any investor who hasn’t made the final decision on a potential project can put that project at risk.
While stocks continue their volatility, the stock markets suspend trading several times each week while they struggle to gain control. In the meantime, equity investors will continue to put their dollars into debt instead of future oil exploration until the market volatility stabilizes. But trading on March 18, 2020, exhibited upward volatility in the bond markets, too, that caused investors to become nervous all over again.
What happens then to the drilling companies? Businesses all over Louisiana that have connections to the oil and gas industry are going to pay the price for COVID-19’s impact. We’re not talking just about drilling companies but also the associated services like catering companies, the transportation industry, and hotels, restaurants, and other service businesses. With oil prices around $31 a barrel, this scenario is reminiscent of 2014-2016’s cratering in oil prices that didn’t pick up until the $60 a barrel rate in 2020. Prices under $40 a barrel mean profits in the oil and gas industry are scarce.
Wood Mackenzie, a consultant in the global energy markets, expects the lower oil prices will encourage “industry-wide restructuring” because many businesses only break even when oil is $53 a barrel. At $35 a barrel, Wood Mackenzie predicted that “$380 billion in cash flow would vanish from the forecasts.” In addition, the natural gas markets will also suffer and may not survive below $2 a barrel, the price they are now.
About 48,000 people were employed in the oil and gas sector in Louisiana at the end of 2019, which is down from about 56,000 in 2018. Back in 2012, the high point was 93,000 workers in the same sector.
Some energy companies are more low risk with long-term contracts and cost of service agreements that help mitigate downturns. Even those companies are trading down this past week.
So, what happens to the displaced workers? Depending on how long the COVID-19 downturn lingers, there may be many individuals in Louisiana who lost their jobs and cannot find work. The next step is that they find they cannot pay their bills. That may be true of more than just the oil and gas industry. Right now restaurants are closing their doors as are entertainment centers and anywhere people gather. That means misfortune may make prime targets of various service industries and many individuals may need the protection of a bankruptcy action.
Restructuring and Bankruptcy. Most of the bankruptcy laws in the United States are governed by federal law, but Louisiana does have some of its own twists on the rules.
Where to file. There are three federal judicial districts in Louisiana. You can file in either of the following:
Determining which judicial district would be most advantageous to you is an important decision and one you should discuss with your attorney. The lawyers at John W. Redmann, LLC are ready to help you with your bankruptcy questions.
If you are facing unemployment or under-employment with bills you cannot hope to pay, call John W. Redmann, LLC. Our attorneys can help you sort through the labyrinth of legal forms that you must file and help you understand the bankruptcy laws. We have offices to serve clients in both Gretna and Metairie, and we are available to clients remotely during this especially uncertain time.
Call us for a free consultation at 504-500-5000 or contact us online. We look forward to hearing from you and helping with your legal questions.