Fundamental Differences Emerging On Question Of Moratorium Effects

A piece in the Baton Rouge Advocate today shows there is a wide chasm between conservatives and left-wingers on the question of how damaging the Obama administration’s moratorium on offshore drilling has been to Louisiana’s economy.

Entitled “Numbers don’t support Jindal’s fears on drilling moratorium,” Michelle Milhollon’s article winds its way through a variety of statistics in an effort to minimize the effect of the moratorium on the state’s economy. Among them…

  • State tax collections overall are up;
  • Personal income tax collections overall are up;
  • Oil prices are rising;
  • Consumer spending is increasing;
  • Employment overall in oil and gas increased from November to December;
  • Louisiana’s December unemployment rate was 8.0 percent in December, down from 8.2 percent in November.

Milhollon had access to the information that Houston-based Seahawk Drilling, who operates 20 shallow-water jackup rigs in the Gulf, has filed for Chapter 11 bankruptcy in the past week and it pursuing a sale to Hercules Offshore which will likely result in layoffs of some large percentage of its 494 current employees. Seahawk’s predicament was largely brought on by a 3rd-quarter loss of some $32 million, and that loss and the bankruptcy itself is directly attributable to the moratorium in the words of the company’s CEO.

Seahawk isn’t alone. Hercules Offshore itself lost $15 million in the third quarter. Noble Offshore reported a $99 million profit in the fourth quarter, down from $446 million in the same period in 2009. Diamond Offshore’s third-quarter earnings were $199 million, down from $364 million the previous year. Stone Energy earned $20.3 million in the third quarter rather than $51.1 million the year before. Parker Drilling went from $7 million in Q3 2009 profits to less than $500,000 in the same period. McMoran Exploration lost $77 million in the fourth quarter.

And on, and on.

Sure, lots of these companies are continuing to turn a profit, and because they are they can keep their people around for a while waiting for things to turn in the Gulf. Companies like Noble and Diamond Offshore have very lucrative operations all over the world they can cover Gulf losses with, though you’ll notice that McMoran, Seahawk and Hercules aren’t in such great shape since they’re more heavily invested in the Gulf.

But what none of these producers are doing is hiring contractors, most of whom aren’t multi-million dollar public companies with websites showing quarterly earnings. We don’t get to find out what the economic effects are. Edison Chouest Offshore, perhaps the largest such contractor, isn’t a public company and doesn’t post quarterly earnings on its website. But Tidewater is, and their earnings dropped from $60 million in the third quarter of 2009 to $34 million in the same quarter last year. There is weakness throughout the sector, and it’s the smaller, less-capitalized and overwhelmingly private companies who have borne the majority of the damage from the moratorium.

GNO, Inc., quoted in the piece, has said it hasn’t seen the job losses it expected – yet.

And perhaps that’s true. But since GNO, Inc. monitors the count of permits issued by BOEMRE for Gulf offshore drilling, they’re in a position to discuss the direction this thing is going. And the organization’s report on the fact that no permits were issued at all in the month of January contained this…

“These new findings prove that BOEMRE cannot claim it isn’t receiving job-creating plans from oil exploration and production companies,” said Gregory Rusovich, Chairman of the Business Council of Greater New Orleans and the River Region. “The plans are there. Until BOEMRE reviews the 103 plans awaiting approval, our economy’s stability remains in jeopardy.”

By including information on submitted exploration and development plans, GNO, Inc. aims to monitor proposed new activity in the Gulf. The organization will report its findings—along with permit approval data—every two weeks with updated GPI reports.

“As we concluded in Part II of our Economic Impact Series, if the level of approved permits does not quickly return to historical averages, we expect to see a jump in unemployment in Greater New Orleans,” said Michael Hecht, President and CEO of GNO, Inc. “To-date, Louisiana companies are holding on to workers, but that forbearance will not last indefinitely—cash and confidence are running out.”

That report was dated Feb. 3. Milhollon had access to it. And yet she didn’t bother to pass along Hecht’s statements (the emphasis above is mine, by the way).

Curious.

Milhollon’s facts are incredibly misleading. She fails to note that Louisiana’s unemployment rate was 6.2 percent in April 2010 before the Deepwater Horizon incident, and it jumped two full points in seven months before backing off two tenths of a point in December. No attempt was made to explain that phenomenon; she just compared the current eight percent to a 9.4 percent national rate, which is of no real value to this discussion. And the fact that oil prices are rising says two things totally unrelated to the issue at hand; namely, that they’re probably going up in part because Gulf production is dropping like a stone, and that it does little good to have a high oil price when the federal government stops you from producing oil.

But what’s worse here is the total lack of regard for the capital of the companies in the industry. Milhollon acts like the only issue which makes a difference is employment, and that’s the same argument being made by the Obama administration and the left-wing commentariat. Since Louisiana hasn’t lost 20,000 jobs as a result of the moratorium to date – which may be true or it may not, since nobody has thoroughly analyzed a 1.8 percent growth in the state’s unemployment rate in the last eight months, we don’t know what the primary driver of that number might be – somehow everything is fine.

It’s fine to cost people millions of dollars when they haven’t done anything. It’s fine for those people to burn capital to pay payroll. We shouldn’t be concerned until those people start going out of business or spitting the bit out with layoffs.

The governor certainly isn’t impressed.

“It’s clear that bad federal policy from the Obama administration has bad effects on businesses and jobs” he said in a release his office put out today on the news about Seahawk’s bankruptcy. “The bankruptcy of this company also represents the many other indirect support businesses and industries hurt” by the slow issuance of permits, Jindal said.

Why didn’t Milhollon balance her piece out with a discussion of how much money has been lost by Louisiana companies as a result of the moratorium? Why wasn’t that even hinted at? She obviously had access to Don Briggs, president of the Louisiana Oil and Gas Association, and quoted him as declaring the industry is at a standstill until the moratorium goes away. But Briggs’ most interesting quote is that if you can’t see the moratorium in the numbers yet, it’s coming. Briggs can offer evidence of the true effects of the moratorium, and Milhollon didn’t appear interested in receiving any for her story. Yes, she’s the Advocate’s capitol bureau reporter and as such her story is going to be built from the perspective of state government, but if she’s taking quotes from Hecht and Briggs it’s clear she’s attempting to assess the business climate, not just the prospective effect to the state’s treasury. The result is less than comprehensive.

It’s a real shame that the state’s media is taking such a limited view of what is actually happening as a result of the moratorium. But it’s not a surprise. It’s not outrageous to cause people to lose money for no good reason anymore.



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