The state has a billion dollar budget hole this year you may have read about. This is due to lots of things but among those lots of things is the sinking price of oil. And, in Louisiana, not only does the price of oil directly affect state revenues, it also tells us, to a large degree, what kind of employment numbers to expect.
For example, when the price gets low enough, we start to see oil field services companies begin to reorganize and contract.
If you're a logistician, an office manager or executive assistant at Halliburton or Baker Hughes, then you should be updating your LinkedIn account and resume. Page nine of a presentation released Monday shows that of the $2 billion in cuts the combined company expects to make, 31 percent will be in North American operations, 18 percent will be in administration and 9 percent in corporate.Emphasis should be on the "for now" there. It doesn't look like anyone expects a turnaround soon.
If you're an engineer, scientist or field worker, you're probably OK for now.
In a note to clients over the weekend, Goldman equity chief David Kostin writes that the firm went to Texas this week to meet with portfolio managers, and those conversations "started and ended on the topic of oil."Goldman expects oil to hover at or around $75 bbl at least through the first part of next year. (Don't be shocked if it goes lower, though.) At that price, the so-called "shale boom" is effectively over. At least, in Louisiana it is.
"Although still stunned by the ferocity of the selloff," Kostin writes, "everyone we met was resigned to the idea that crude prices would remain low for several years. Although we met many Longhorn alumni, we met no Energy bulls."
Profitability varies depending on the rocks’ depth and density, access to pipelines and the mix of oil and gas that wells pump. Drillers in the Tuscaloosa Marine Shale of Louisiana and Mississippi break even at $79.52 a barrel because they have to bore more than two miles deep, according to data compiled by BNEF. The cheapest field was the Green River basin in Colorado and Wyoming, at $50.10 a barrel.
And this is one reason the unemployment numbers have been ticking steadily upward since about the middle of the year.
That graph doesn't go all the way through to October but Louisiana very narrowly exceeded the national unemployment rate last month for the first time since Katrina. (Still bucking the trend!)
Granted, there's way more to the story than just this but I already said this was the quick and dirty version. It's just that Bobby Jindal keeps promising us these billion dollar budget holes he keeps creating via massive tax giveaways to chemical companies are going to bring about a "new industrial revolution" in Louisiana. (Complete with pre-20th Century environmental and labor standards.)
But so far, the state's fortunes seem like they're just as tied to the price of oil as ever. And the price of oil, like the state of Louisiana itself, is sinking.