Oil, gas decline prompts Vallourec shutdown

By BRANDON KLEIN and KALEA HALL

news@vindy.com

YOUNGSTOWN

The decline in the oil and gas market hit home when Vallourec Star announced a three-week shutdown at its pipe-producing plant here.

Workers at the plant, that employs about 700, will be able to schedule vacation, paid time off or file for unemployment.

“We have already taken some measures to adjust production schedules, negotiate with suppliers and minimize the use of contractors,” the company said Wednesday. “The economic realities we are facing require additional action.”

Youngstown’s Vallourec Star is a subsidiary of France-based company Vallourec USA. The facility started its production of small-diameter pipe for sales in the U.S. and Canadian markets in October 2012.

The announcement came after the company said in late January it was developing alternative operating plans and schedules and working with suppliers and customers to monitor activity.

Workers will return to work after that blackout period. The company will offer a six-month voluntary layoff for those interested. Health care coverage will continue during that six month period.

“We are carefully monitoring market developments and will continue to adapt quickly to this unstable business environment,” the company said.

The price for crude oil was floating between $48 and $55 Wednesday evening, according to Bloomberg Business. Oil prices have fallen 50 percent since June when it was above $100 a barrel.

Gregg Laskoski, senior analyst for gasbuddy.com, said OPEC’s decision last year to not cut down on production has led to a drop in crude oil prices.

While OPEC members can still make a profit on $30 a barrel, domestic energy companies need a minimum of $70 per barrel, he said.

“That’s 700 families affected by commodity prices,” said Shawn Bennett, executive vice president of the Ohio Oil and Gas Association.

On the other hand, prices will stabilize in the first quarter of 2015, and from there will slowly increase, said Mekael Teshome, a PNC Bank economist.

“It will make for a bumpier ride for 2015,” he said. “We don’t see this as having a lasting influence on the region.”

Last month, U.S. Steel announced it furloughed about 750 employees from two plants that make tubular steel, which is used in oil and gas drilling.

About 20 employees were also laid off at the TMK IPSCO facility in Brookfield that makes specialty connections on pipe used down hole in oil and gas production, said Roger Bentley, TMK IPSCO communications director. The plant employs 125 people.

TMK IPSCO also had reductions at its Ambridge and Koppel, Pennsylvania facilities.

“Decisions like this are theirs to make,” Youngstown Mayor John A. McNally said of Vallourec’s decision to shut down for three weeks.

He also said Vallourec “appears to be fair to the families” during this economic downturn.

The city of Girard and Youngstown have had an agreement since 2009 to share the tax revenue generated by the Vallourec’s employees.

McNally said the city received a ballpark figure of $500,000 last year in income-tax revenues from the company’s employees.

Girard Mayor Jim Melfi said the city will have to “manage accordingly” with its budget because of the shutdown.

“It’s something we don’t want to see happen,” he said.

Last year, the city of Girard received $475,000 in payroll tax from the company.

On the other hand, Melfi recognizes that it’s a cyclical business just as the steel industry was about 40 years ago.

Guy Coviello, vice president of government affairs for the Youngstown/Warren Regional Chamber, was not surprised by the announcement given the climate with the oil and gas industry.

“I think long term everyone is still confident of what is going to happen here,” Coviello said.

Some elected officials also expressed concern for those affected by the shutdown.

“I am deeply concerned for the families and workers that will be hurt by the mill’s idling,”state Rep. Michele Lepore-Hagan of Youngstown, D-58th, said in a statement. “Although I am disappointed with this set back, I respect the proactive approach Vallourec used to minimize effects on employees.”

State Sen. Joe Schiavoni of Boardman, D-33rd, said he’s willing to have conversations with companies such as Vallourec to hear concerns.

“I just want to be helpful anyway I can,” he said. “Hopefully everything works out, and they can get back to full capacity.”

U.S. Rep. Tim Ryan of Howland, D-13th, also offered his assistance to Vallourec and its employees.

“I am concerned with this shutdown and hope everyone is back to work soon,” Ryan said in a statement. “I have reached out to Vallourec Star officials Wednesday and remain in regular contact with them regarding issues affecting their business.”

U.S. Sen. Sherrod Brown, a Democrat from Cleveland, also said he would work with officials from Vallourec and community leaders to get people back to work.