Wednesday, May 25, 2011

Less than a year after thousands converged in the Cajundome fearing the worst, Lafayette’s economy has taken a turn for the better.
By William Kalec

They came in droves – your angry, your worried, your curious, your concerned — all congregated beneath the Cajundome’s concrete roof, suitable shelter from a falling sky.

On July 21, 2010, a confluence of fear, uncertainty and perceived desperation permeated “The Rally For Economic Survival,” the oil sector’s organized response to the federal moratorium placed on deepwater drilling and exploration after the Deepwater Horizon rig blowout.

A wide-ranging but united mix of 11,000 attendees — from those wearing Half Windsor knots to those whose names were sewn in script on their work shirts — sat for two hours and absorbed essentially the same morbid message delivered in a multitude of ways by headlining politicians and industry leaders.    

Then-interim Lt. Gov. Scott Angelle, who emceed the majority of the event, won favor from the crowd by reminding President Obama this moratorium hurts “the Cheramies, and the Colliers, and the Dupuys, and the Robins, and the Boudreauxs, and the Thibodeauxs” much more than it did the BP stockholders — claiming the decision to cease deepwater activity was “crippling the middle class of the Gulf Coast.”

Don Briggs, president of the Louisiana Oil and Gas Association, predicted the moratorium would be a financial disaster for Louisiana. Gov. Bobby Jindal insisted Louisiana residents didn’t want to collect unemployment or cash BP checks. Plaquemines Parish President Billy Nungesser told the audience the moratorium would turn “Louisiana into a state of bankrupt businesses.”

Nearly a year later, the dire issues these men spoke so passionately about persist. While the moratorium and equally potent “defacto moratorium” have given way to the slow trickle of deepwater permits, the total of active rigs in the deep and shallow waters of the Gulf of Mexico on April 15 was 26 – half the number of that date a year ago.

“You could hold the rally, again, today, because it’s just as relevant today as it was then,” Briggs says. “The message hasn’t changed: If we shut down the rigs in the Gulf of Mexico that are sitting out there waiting to go to work, you’ll see a tremendous impact. The story of our industry in the Gulf of Mexico isn’t over.

“Those companies…They’re still sitting out there with full crews, sitting over well sites, waiting for those permits,” Briggs continues. “There’s no way they’ll wait much longer. Time is running short.”

All of which makes Lafayette’s immunity to the certain economic pestilence these political and petroleum prophets forecasted last summer so perplexing.

According to numbers released by the Louisiana Workforce Commission, unemployment in Lafayette Parish as of January 2011, 6.6 percent, pretty much mirrored statistics of the previous year, 6.5 percent. Of those employed, 22.8 percent held jobs in wealth-creating industries, a mark substantially above the state average of 17.9 percent. In that same time period, the total nonfarm employment in Lafayette rose by 2,700 jobs, and retail sales in the first two months of 2011 were up 8.64 percent compared to January and February last year (March came in 11 percent higher than March 2010). That statistical sunshine was bolstered in April when Halliburton announced its plans to build a $65 million manufacturing facility in north Lafayette that is predicted to create 500 new jobs.

Even Angelle, who has returned to his job as secretary of the Louisiana Department of Natural Resources, has changed his tune considerably. In an April 21 press release, Angelle said, “Encouraging developments indicate a resurgence of investment and interest in energy exploration in South Louisiana,” specifically noting McMoRan Exploration’s announcement of strong results from a new deep natural gas well in St. Mary Parish.

“I’m not prepared to declare a boom in sight, like some people, but I am prepared to say I’m optimistic,” says Gregg Gothreaux, president and CEO of the Lafayette Economic Development Authority. “It always seems like every three to four months there’s some world event that affects us one way or another. So, barring the quarterly world event changing this, it just seems like our economy will continue to pick up.”

So, then, what happened? It seems almost paradoxical that an economic resurgence could coincide with a stunted recovery in offshore operations. What of the crippling of the middle class, the plight of the Robins and the Thibodeauxs, the financial disaster that would turn Louisiana into a state of bankrupt businesses?
Why isn’t the sky falling?

“I don’t know,” says LSU professor emeritus of economics Loren Scott, who to his credit has recently refused to cower from the Chicken Little outlook he shouted last summer and fall. “What’s going in Lafayette with the employment numbers right now is a great puzzle for me. I mean, I’ve been watching the Louisiana economy for years and this, well, this just befuddles me.”

The answers, at this point anyway, aren’t really answers as much as they are hypotheses — guesses to explain what Scott and others believe to be the unexplainable.
Some speak of the strength and resiliency of oil and gas companies, those willing to continue reaching into their deep pockets and stomach the financial blow for the hope that if/when their deepwater permits are issued or re-issued, they’ll still possess the personnel to capitalize on the escalating price of oil.

That companies would literally stand idle, Briggs says, awaiting a cue from the federal government illustrates the vast economic potential found in deepwater exploration and, conversely, validates some of the regional panic initially caused by the moratorium.

“We were thinking 20,000 people [would lose their jobs], and those numbers weren’t real,” Briggs says. “I didn’t realize, and I don’t think anybody realized, that our companies would keep those rigs out there waiting. We didn’t think of the fact that when you have that number of billions of dollars invested that companies would sit there at a cost of $400,000-plus a day and keep those rigs sitting there waiting to get those permits.”

Others note that in hindsight, as weird as this sounds, the timing of the moratorium couldn’t have been better, as it permitted many service and equipment companies to audible and shift focus to the sharp rise in active U.S. land rigs. While operations in the Gulf continue to crawl, the number of land rigs operating in the last week of April 2011 was at 1,772, compared to 1,429 one year earlier.

The enormity of the Haynesville Shale deposit in northwest Louisiana offered ample refuge for Acadiana-based service and equipment companies throughout the moratorium — a viable safety net that simply wasn’t an option had this crisis happened five years ago. Briggs couldn’t emphasize enough the importance of the Haynesville development, going as far as saying that “Louisiana’s economy in the oil and gas sector has been jacked up by the billions of dollars poured into the Haynesville Shale.”

“The Haynesville Shale,” Scott says, “in technical economic terms is a ‘Big Mother.’”

Therefore, redirecting attention toward that project was a logical next-step for many companies with the means to shift crew locations. For instance, when the moratorium was implemented, Frank’s Casing Crew of Lafayette, a provider of tubular equipment and personnel, generated 30 percent of its business from deepwater exploration, according to vice president of corporate sales Leonard Castille. With that revenue source temporarily dried up, Frank’s repositioned its service sector on jobs in the Haynesville Shale project in addition to sites in Pennsylvania, North Dakota and parts of south and east Texas. A few employees were sent to Brazil and Africa.

Castille says Frank’s did not lay off anyone because of the moratorium, nor was it forced to cut back on “shop” hours because its manufacturing team still produced parts for other areas of the country and world.

“Your first concern was, ‘Where are you going to put these people?’” Castille says. “It wasn’t cutting costs. We’ve tightened our belts before, but we’ve never gone to the extremes that a lot of public companies do ­— cutting people for fear the bottom line might not look good on Wall Street.”

Local branches of large service companies, such as Schlumberger, took a similar course of action — relocating its workforce rather than laying it off. Jennifer Smith was hired by Schlumberger as a field engineer and moved to Lafayette shortly after her 2008 college graduation from Penn State University. Up until the moratorium, the majority of Smith’s service took place on offshore rigs located in the Gulf of Mexico.

Smith, like several of her co-workers, was re-stationed internationally — in Smith’s case, Brazil — but decided to keep paying rent on her then-dormant River Ranch apartment, thus keeping a portion of her income local while she continued her employment overseas.

“When they redeployed — when they sent people to the shale [sites] and sent people overseas, those people don’t move,” Gothreaux says. “They come home and spend their money. I think that is what has bolstered this economy, and I think that will work for awhile.

“But you don’t know how long people are willing to hang on,” Gothreaux continues. “Whether that means hang on to an employee, or whether how long an employee is willing to live in Lafayette or live in Acadiana and work in another country before they decide to go someplace more convenient.

“So the only solution for the future of our workforce, our economy and our country is for the Gulf of Mexico to be viable.”

On the Cajundome concourse, tucked away from the panicked pageantry of the arena floor, the voice of the people was not only heard but recorded.

Standing in front of a simple camera-tripod setup and behind a canopy sporting the Rally’s logo and the phrase “Citizens Speak Out,” attendees were encouraged to articulate the hardships the moratorium brought forth today and those it might bring forth tomorrow. Those recordings — most of which are archived on the Rally’s website — stand as video time capsules of the region’s concern. Almost every emotion is represented. Some pleaded. Some reasoned. Some warned of impending doom. Some fathers stood next to sons, husbands next to wives, creating a powerful visual. Some bargained. Some got tough. Some got smart-alecky.

When it was Nancy Marcotte’s chance to speak, she told of the moratorium’s immediate effect on her business, Keller Williams Realty of Acadiana. In July 2010, the agency’s monthly volume in sales was more than $1 million off compared to the same month a year earlier. The average price of the homes Keller Williams sold in July 2010 was $161,988. In July 2009, the average price was $186,134.

“Let them keep drilling so that people can keep their jobs,” Marcotte said into the camera lens at the Rally. “Jobs are important right now. I think that’s the focus of the country. Let’s not lose thousands and thousands more.”

Luckily for Marcotte, those July 2010 statistics were a mere anomaly and not a forecast of things to come. In fact, Keller Williams sold 11 more homes in 2010 than it did in 2009, and the average price of those homes was $176,727 compared to $155,799. Looking back, Marcotte isn’t sure if Keller Williams’ summer dip was caused by the moratorium, the end of the $8,000 tax credit to first-time homebuyers or a combination of both.

Sales in 2011 are pretty much on par with sales through the first four months of 2010, but the average price of the homes sold — $191,444 — continues to increase.
“The more expensive homes are starting to move again,” Marcotte says. “Not in a crazy, flying-off-the-shelf kind of way, but at a better pace than they have been in the past one to two years….I’m fortunate to say the [housing] market has done a lot better than the outlook appeared at the time of the moratorium.”

Andre Comeaux, senior vice president of Regions Insurance in Lafayette, also chose to speak in front of the camera that day, urging the government to lift the moratorium and not bog down the economic recovery with unneeded additional regulation of offshore drilling. Because the commission insurance agents make is directly connected to the cost of insurance premiums, and those premiums are directly connected to the client’s payroll and revenue, Comeaux estimates Regions experienced a 15 to 20 percent drop in commissions collected from transportation and energy service clients.

“It was significant, and it’d be more significant if that’s all we did. But we do more,” Comeaux says. “So we stuck it out. And sticking it out entails hitting the pavement, [beating] the doors to find more business to make up for what we lost with the clients we service being on hiatus.”

Several economists believe the escalating price of oil, and the pressure it is putting on the government to expedite the green-lighting of offshore permits, should correct any financial dips experienced by Regions and other businesses indirectly burdened by the moratorium. An increase in offshore rig count would also give service and equipment companies the desirable dilemma of calling back relocated employees or hiring skilled labor from other parts of the country or world.

“Can we cover the work? That’s our concern right now if deepwater work picks up,” Castille says. “We’re short on people, short on equipment.
“But that’s a very good problem to have. We’ll definitely adjust.”

From an economic standpoint, Scott says, an increase in activity in the Gulf would likely kick-start the stunted growth experienced along the Highway 90 corridor from Houma to Lafayette. Perhaps, Scotts says, the ultimate effect of the moratorium was that unemployment figures and economic productivity remained relatively stagnant during a period when oil fetched more than $100 a barrel. Still, he admits, it’s a far less harrowing outcome than the one he and many others foresaw last summer, which has led many to wonder if all the doom and gloom was justified.

“Well, apparently not,” Scott says. “Because, to be honest with you, I was part of the fear-mongering. We thought Lafayette would be absolutely losing jobs this year and next year.

“And, it turns out, it’s exactly the opposite.”