Last year,
we predicted this would happen: Louisiana Gaming Control Board revenue figures
for the first half of 2016 show a 4.4% decline from the same months of
2015.
The cause as
we see it is the ongoing economic devastation of the oil and gas sector. In our
February 2015 post we stated: “Louisiana has the largest concentration of
crude oil refineries, natural gas processing plants and petrochemical
facilities in the Western Hemisphere. It is America’s 3rd largest
producer of petroleum and 3rd leading state in petroleum
refining. Louisiana is the 2nd
largest producer of natural gas. It supplies over 25% of total US
production. While Texas leads the US in
most of the categories of oil and gas production, Texas does not have casinos
or racinos – so in the parking lots of casinos and racinos across the
Shreveport/Bossier City and Lake Charles regions, you’ll see as many Texas
license plates as Louisiana plates.”
“The halting
of projects, firing of workers and deferring of investments will certainly
change the economies of Texas and Louisiana and negatively affect the casino
and racino business in all four Louisiana regions.” We further predicted
declines in each region as:
·
Lake
Charles: down 2% to 3%
·
Shreveport/Bossier
City: down 4% to 6%
·
New
Orleans and Baton Rouge regions: down 2% to 4% each
Actual 2015 results:
·
Shreveport/Bossier
City: down .52%
·
Baton
Rouge: up 3.9%
·
New
Orleans: down 3.2%
·
Lake
Charles:* up 26.25%
*Lake
Charles numbers include the Golden Nugget which opened in December 2014.
So what happened in the first half of
2016?
|
Jan-Jun 2015
|
Jan-Jun 2016
|
$ Change
|
% Change
|
|
|
Shreveport/Bossier City
|
$373,598,857
|
$352,677,057
|
($20,921,800)
|
-5.6%
|
|
Baton Rouge
|
$196,980,177
|
$189,776,756
|
($7,203,421)
|
-3.7%
|
|
New Orleans
|
$316,596,288
|
$297,900,382
|
($18,695,906)
|
-5.9%
|
|
Lake Charles
|
$459,745,006
|
$433,728,972
|
($26,016,034)
|
-5.7%
|
|
Total Louisiana
|
$1,346,920,328
|
$1,274,083,167
|
($72,837,161)
|
-5.4%
|
Further
declines are most likely. According to Zacks Investment Management (May 7, 2016):
“Does the Energy Collapse Resemble Tech’s 2000 Bubble Bursting? At last count
there were 59 chapter 11 bankruptcy filings from companies in the oil and gas business.
The energy sector, as a whole, has felt the hit profoundly with earnings
falling (-) 56.4% in Q3 2015 and (-) 78.6% in Q4 2015. For Q1 2016, the damage
is estimated to be even worse, with the current Zach’s estimate being a (-)
114.5% drop in Q1. Additionally, with a handful of other small players likely
in line at bankruptcy court, it may not be long before 69 filings seen by
telecom during the dot-com burst in 2000.”
Further, a
recent Forbes article reads, “All told, 69 oil and gas producers with $34.3
Billion in cumulative secured and unsecured debt have gone under. Since share
prices peaked in 2014, the oil bust has wiped out about $1 Trillion in equity,
with the Dow Jones U.S. Oil & Gas Index off 40%.”
There’s more
to come: “Despite the modest recovery in energy prices (in 2016), all
indications suggest many more producer bankruptcy filings will occur during
2016” writes Haynes & Boone.
According to Deloitte: “About a third of global oil and gas companies,
or about 175 of them, are at risk of insolvency.” Bernstein Research estimates that by 2019
we’ll see more than $70 Billion in defaults amid more than $400 Billion in
high-yield debt.” -- That would indicate
we’re only halfway through the bankruptcies.
We will
continue to monitor and report the oil and gas sector and its effect on the
Louisiana casino and racino revenues. We
predict that there is more to come and that our previous projections are likely
modest.
