The Working Coast: Economic Downturn Strains Louisiana's Long Relationship With Oil And Gas

May 9, 2016

A sudden drop in oil prices last year has brought huge challenges to the state of Louisiana — more than 10,000 layoffs in the oil and gas sector and a $400 million hit to the state budget. Long known for its “working coast” — represented by shipping, fishing and industry in south Louisiana and along the Mississippi River — the downturn brings with it something of an identity crisis.


The history of oil and gas in Louisiana all started with what’s known as Mr. Charlie, the first moveable oil rig. It was built in the early 1950s and now sits on the banks of the Atchafalaya River in Morgan City, where it was floated and towed after being retired from about 40 years of pumping oil offshore. Mr. Charlie belonged to Murphy Oil Company and was named for C.H. Murphy, Senior.

Virgil Allen runs a museum at the site. “Everything that’s out there today in the oil and gas industry is fashioned after this rig,” he says.

Before Mr. Charlie, companies used old naval vessels and patched-together boats to hold the equipment and drill. Putting everything all on one platform was a game-changer. John Lopez spent decades in the industry before heading the Lake Pontchartrain Basin Foundation. “The standard oil companies like Exxon, Chevron, Mobil and Shell — all the major players came to Louisiana during that time and had a major interest, and that was really the backbone of the industry,” he says.

A plaque in Morgan City celebrates the city’s role in the history of the oil and gas industry in Louisiana. It is home to the state’s first offshore rig, Mr. Charlie, which was dragged to the banks of the Atchafalaya when it retired and is now a museum.
Credit Tegan Wendland / WWNO

  It was the beginning of a long relationship between offshore drilling and the state of Louisiana. In 1959, the state recorded more than $100 million in oil and gas tax revenue. Production peaked in 1970 at more than 1.5 million barrels a day.

LSU professor and economist Loren Scott does research on the industry. He says it has historically been a financial boon to the state. “When things are really, really, good, it creates lots of jobs,” he says. “And they're not Pizza Hut jobs, they're really high-paying jobs.”

But Louisiana got its first glimpse of what it’s like when things are bad in the 1980s. Oil prices were booming then. John Lopez says that drove innovation and expansion. “When you have the correspondence of that technology and high prices, then the industry goes into overdrive,” he says.

A glut of oil led to prices tanking in 1986. At the time, the state got 40 percent of its revenue from the industry, and the budget was completely undercut. Louisiana raised sales taxes and cut deeply into public hospital budgets and other services. It legalized gambling.

Last year the price of oil tanked again. In 12 months oil went from $80 per barrel to $30, just as companies were pushing new technology, like offshore fracking for oil.

The state did learn some lessons from the 1980s. The current oil bust is tempered by a more diversified economy, like healthcare, education, digital media, film and an expanded chemical and refining industry.

Economist Dr. Loren Scott does research for the oil industry. He says Louisiana relies less on oil and gas revenue than it did during the downturn in the 1980s.
Credit Tegan Wendland / WWNO

Today only 12 percent of the state’s general fund comes from oil and gas drilling revenue. But, Scott says, Louisiana is really feeling the downturn. “People in Kansas aren’t feeling this. The people in Oregon and Washington State are not feeling this. They don’t have a big dependency. They might have some going on, but nothing like us.”

Oil companies pay two types of taxes, a corporate income tax and a severance tax. The latter is 12 percent market value of the oil they produce, which is one of the highest rates in the country. Scott says we can’t ask for more right now.

The industry is already cutting way back. It has even hit Mr. Charlie. Allen uses the old rig to train today’s offshore workers -- but he hasn’t had any students for a year, because there hasn’t been any demand.

“There are a lot of people unemployed right now,” Allen says. “They’re looking and praying for work.”

It’s the blessing and curse of being an oil state. A source of major revenue you can always count on. Until you can’t.

 

Support for WWNO's Coastal Desk comes from the Greater New Orleans Foundation, the Coypu Foundation and the Walton Family Foundation.